Many of you have heard us talking about our investment philosophy that we try to not make any changes unless they will push the needle. While we don’t like to bore our clients (or anyone for that matter) with endless charts, we felt the chart shown below helps best exemplify how we view the world and what we feel actually is a material dislocation that can be acted upon.
Source: Pilotage Private Wealth A.G.
The chart is created by taking the trailing 12 month total return of Small caps (represented by iShares Russell 2000 ETF Ticker: IWM) minus the 12 month total return of Large Caps (represented by the SPDR S&P500 ETF). As you can see, small caps have not underperformed large caps by this large of an amount since 2000. This chart is not to be used alone as a “timing” mechanism as you can see the thresholds and levels charge markedly over time and the data favors the upside vs. downside (peak out performance of 20% vs. peak underperformance of -12%), though it can be used to tell us when it is a better time to rebalance or reallocate relative to history. This is only of the many premias that we monitor on a daily basis to ensure we can act decisively when panic or euphoria hits global capital markets.
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