Croatia is the second smallest country to reach the World Cup Final, a tiny nation of 4.1 million people located on the shores of the Adriatic Sea. It ranks as the 128th largest country in the world and accounts for about .054% of the global population. If it were a state, it would rank 27th nestled between Kentucky and Oregon.
UBS gave Germany a 24% chance to win the World Cup after running 10,000 simulations.[1] Brazil, Spain and England were also expected to finish strong. The 17-page report highlighted all the reasons why Germany would win along with the odds for each country. Croatia was given a .2% chance to win.
Large countries, with all the pomp and circumstance, get the major headlines, small countries not so much. Like countries, large-cap stocks get most of the press. Companies like Facebook, Amazon, Apple, Netflix, and Google make news and move markets. Small-cap stocks are an afterthought.
Small-cap stocks are doing well this year, up 11.5%. This sector of the market has benefited from what they don’t have. They don’t have a large international presence so they’re (fairly) immune to the trade war and a strong dollar.
The Microcap sector is also performing well. They account for about 3% of the U.S. equity market with an average market-cap of about $500 million. Apple, by comparison, is approaching one trillion. The Dimensional Fund US Micro Cap Portfolio (DFSCX) has generated an average annual return of 12.13% since 1981. A $10,000 investment when the fund opened is now worth $656,638. Year-to-date it has risen 10.02%.[2]
Small cap outperformance is not new. Since 1980, the Russell 2000 Small-cap index has returned 11% per year. Dating back to 1926, $1 invested in small-cap stocks grew to $22,985 by the end of 2017. While large-cap stocks ended with a value of $7,347.[3]
As you build your portfolio don’t ignore small companies because they can give your investments a big boost.
Piglet noticed that even though he had a very small heart, it could hold a rather large amount of gratitude. ~ A.A. Milne
July 17, 2018
Bill Parrott is the President and CEO of Parrott Wealth Management firm located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process.
Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.
[1] https://www.bloomberg.com/news/articles/2018-05-17/germany-will-win-the-world-cup-ubs-says-after-10-000-simulations, Adam Blenford, May 17, 2018
[2] Morningstar Office Hypothetical Tool
[3] Dimensional Fund Advisors Investment Principles