An analysis of the performance of factors in the Australian share market reveals some valuable insights for equity investors. Contrary to conventional wisdom, large capitalisation stocks have consistently beaten small-cap companies.
While most investor portfolios have exposure to one or more factors, some factors tend to deliver better risk-adjusted returns than others over the longer term. Traditionally, it is believed that small caps outperform large caps because they are growing faster, a conclusion most famously promoted by academics Eugene Fama and Kenneth French. Their research found investors were rewarded for the greater risk in backing more volatile smaller companies.
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