How to allocate your US portfolio

ON NORTH AMERICA

The share prices of US smaller companies - so called small- and mid-cap stocks - have provided investors with outsized returns versus larger companies over the past decade.

The underlying notion is that smaller companies offer better returns because that segment of the market is less efficient. While it is true that smaller companies are covered by fewer analysts, the data supporting this case of outsized returns does not hold up to scrutiny of research. The evidence is that active small-cap managers have demonstrated no advantage in terms of outperforming their proper risk benchmark, the S&P 600 (Small Cap) or Russell 2000 Indexes, as compared to active large-cap managers against the S&P 500 Index. Therefore, the first decision for investors into US equiti...