One group claims that markets are on the verge of a “new normal” in which old investing rules will give way to new ones during a long period of slow growth. Another group believes that abnormalities will soon turn back into historic patterns.
“Old normalists,” or people who believe in a return to historic patterns, think that stock and bond returns will revert to a normal state, with risk appropriately rewarded with higher returns. Many money managers, however, are have a difficult time in relating old patterns to the current ones. Many have just given up and drawn up an entirely new model.
Small-caps historically tend to perform well in a recovery, so keep an eye on them as the markets move higher:
- Vanguard Small Cap Value ETF (NYSEArca: VBR): up 27.8% year-to-date
- PowerShares Dynamic Small Cap (NYSEArca: PJM): up 10.7% year-to-date
- SPDR Dow Jones Small Cap Value (NYSEArca: DSV): up 32% year-to-date
For more information on trend following, visit our trend following category. You can read more about investment strategy in The ETF Trend Following Playbook.
Max Chen contributed to this article.