Small-cap value stocks have led charge in market revivals since 1980

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May 27, 2009 3:40pm ETF BASIC NEWS

wall-streetU.S. small-cap value stocks have been the worst performers so far this year, but recent history shows they could emerge as the frontrunners if the economy stages a recovery.

Of course, corporate earnings still face serious financial headwinds and investors could pay a steep price for getting in too early.

Nonetheless, Russell Investments recently examined the stock market’s performance during the five recessions that have hit the U.S. economy since 1980, including the current credit malaise. The research uncovered clear trends in how growth and value stocks perform during recessions.

On average, “value has underperformed relative to growth during periods of economic contraction,” according to the report.

“This relative underperformance has reversed almost immediately when the economy bottomed out and turned upward, and value has markedly outperformed growth in the early periods of economic expansion,” Russell said.

“This pattern has been strongest in the small cap segment of the market,” it added.

Style points
Among the nine co-called style boxes for U.S. stocks, small-cap value shares have fallen the hardest for the year-to-date period. The iShares S&P SmallCap 600 Value Index Fund (IJS) was off 5.2% through May 20, trailing the S&P 500 Index (SPX) by more than 6 percentage points, according to investment research firm Morningstar Inc……

……Investors’ choices for this particular style box include: The iShares S&P SmallCap 600 Value Index Fund, SPDR Dow Jones Small Cap ETF (DSV) , Vanguard Small Cap Value ETF (VBR) , PowerShares Dynamic Small Cap Value Portfolio (PWY) , iShares Russell 2000 Value Index Fund (IWN) , Rydex S&P Small Cap 600 Pure Value (RZV) and iShares Morningstar Small Value Index Fund (JKL) . Meanwhile, ProShares Ultra Russell 2000 Value (UVT) is a leveraged ETF for the segment.

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