WhatHasWorkedFundOct14Web

WHAT HAS WORKED IN INVESTINGSTOCKS WITH SMALLER MARKET CAPITALIZATIONSLarger Returns from Small Capitalization StocksRolf Banz ranked all NYSE listed companies according to market capitalization each yearfrom 1926 through 1980, sorted the companies into quintiles, and measured the annualinvestment returns, on a market capitalization weighted basis, of each quintile. The resultsare shown below in Table 32.Table 32: Total Annual Returns on NYSE Stocks Sorted into Quintiles According toMarket Capitalization, 1926 – 1980Quintile1 (largest) 2 3 4 5 (smallest)Compound annual return 8.9% 10.1% 11.1% 11.7% 12.1%Value of $1 invested on12/31/25 at end of 1980$108.67 $200.22 $333.76 $443.69 $524.00Marc Reinganum, in “Portfolio Strategies Based on Market Capitalization,” The Journal ofPortfolio Management, Winter 1983, studied the investment returns of all stocks listedon the NYSE and AMEX from 1963 through 1980. All companies listed on the two stockexchanges were ranked according to market capitalization and sorted into deciles at thebeginning of each year from 1963 through 1980. Table 33, on the next page, shows themean average annual returns, not the compound rates of return, for each of the ten marketcapitalization groups, as well as the cumulative value of $1 invested in each group from1963 through 1980, and descriptive information concerning each decile.41