Opposite Ends of the Style Box [Post 32]

A widespread misconception in the realm of investing is that "growth funds" and an “aggressive portfolio” are one and the same. However, while this can be true, this isn't always the case.

The blue Style Box below illustrates what a mutual fund labeled as "growth" might encompass. The numbers within the squares indicate the % of companies falling into each respective category. The fund below primarily comprises Large Growth and Large Neutral companies, such as Apple, Microsoft, and Amazon.

One might guess that a "growth" fund is likely to outperform a "value" fund (shown across the top of the Style Box) purely based on their titles. However, research conducted by Dimensional Fund Advisors1 reveals that over rolling 1-, 5-, and 10-year periods spanning roughly the last 100 years, value companies have consistently outperformed growth companies, and small companies have outperformed large ones.

While many "aggressive growth" portfolios tend to emphasize large growth companies, individuals aiming to maximize returns might find it beneficial to explore further down and to the left of the Style Box and consider adding a "small value" fund to the portfolio.

Diversification among several asset classes is strongly advisable as past performance isn’t always indicative of future results. So, while small cap value funds have shown strong returns on a historical basis, it would be unwise to invest an entire portfolio in that single asset class.

This information reflects the research/opinion of the author and should not be seen as a recommendation to invest in any security. Past performance is no guarantee of future results. Investing risks include loss of principal and fluctuating value. There is no guarantee an investment strategy will be successful. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio.

1. Dimensional Fund Advisors. (2023, July 28). How Often Do Small Cap Value and High Profitability Outperform US? my.dimensional.com. https://my.dimensional.com/dfsmedia/f27f1cc5b9674653938eb84ff8006d8c/98521-source/how-often-do-small-cap-value-and-high-profitability-outperform-us.pdf