Article: US Small-cap growth posts surprise comeback over value after disappointing performance in 2022

Brendan Cooper | April 27, 2023

Q1 2023 Manager Research: U.S. Small Cap Value Equity Performance

In July 2021, research from Investment Metrics, a Confluence company found that rising rates should help Value stocks and hurt Growth stocks. We certainly witnessed this in the small cap space where the Russell 2000 Value index outperformed the Russell 2000 Growth index in 5 of the following 7 quarters (Q3 2021-Q1 2023). More recently however, there was a reversal as small cap growth outperformed value by 4.8% in March and 6.73% during Q1 2023. The Small Cap Value index has 20% more in financials compared to Growth and was consequently much more impacted than Growth by the recent bank crisis. Whether the Growth rebound is short lived remains to be seen in the months ahead. If rates continue to rise, however, there will likely be a reversal back in favor of Value.

Below we spotlight the performance of active U.S. small cap value equity managers as of March 31st, 2023, based off the 10th business day preliminary data of IM Peer Groups.  For U.S. small cap value equity there were 114 products from 90 asset managers that we used for this analysis.

Figure 1: U.S. Small Cap Value Peer Group Analysis. Source: Investment Metrics, a Confluence company

Summary of Active U.S. Small Cap Value Equity Manager Performance:

  • In Q1 2023, 90% of small cap value products outperformed the Russell 2000 Value index return of -.66%.
  • The average top quartile small cap value return was 7.26% for the quarter, compared to -.61% for the bottom quartile.
  • The top quartile performers were overwhelmingly concentrated, fundamental products which averaged 43 holdings and active shares over 97%. Comparatively, the bottom quartile performers averaged over 120 holdings with lower active shares.
  • As noted in our recent Factor Performance Analysis March 2023 Growth & Quality factors in U.S. equity outperformed by a considerable margin. We see a similar impact for the top performing small cap value products which dipped into growth more than their peers, especially the factors dividend growth & return on equity. (Figure 2)
  • Top quartile performers have much lower exposure to Value, Yield, and dividend growth- particularly earnings yield and cash flow yield.
  • From a sector perspective, the top performers were overweight the benchmark and peers within Information Technology, and underweight both in Financials. (Figure 3)

Figure 2: U.S. Small Cap Value Top Quartile Performers Skyline.  Source: Investment Metrics, a Confluence company

Figure 3: U.S. Small Cap Value Top Quartile Performers vs Median Active Sector Weights.  Source: Investment Metrics, a Confluence company


The material presented in this document is an assessment of the market environment as of the date indicated; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any funds or any issuer or security or similar.

This document contains general information only, does not consider an individual’s financial circumstances and should not be relied upon for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should always be given to consult a Financial Advisor before making an investment decision. 

Investment Metrics, a Confluence company, does not provide investment advice and nothing in this document should be considered any form of advice. Investment Metrics accepts no liability whatsoever for any information provided or inferred in this document.


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Investment Metrics, a Confluence Company, is a global leading provider of investment analytics, reporting, data and research solutions that help institutional investors and advisors achieve better financial outcomes, grow assets and retain clients with clear investment insights.