When Volatility Spiked, Large Caps Outperformed Small Caps

Whether small or large, equities would like to remember the period between February 19 and March 23 when the pandemic sell-offs reached a zenith. However, it was large caps that fared much better as volatility spiked to atmospheric levels.

One only has to look at the defacto volatility index, the VIX, in relation to the performance of large caps versus small caps.

“On days when the VIX index rose, large caps tended to do better and vice versa,” a Finews.com article noted. “A one-point rise in the VIX index translated, on average, into a seven-basis-point underperformance of the Russell 2000 with respect to the Russell 1000. That might not sound like much but the VIX rose from 14 to 85, enough to shave as much as 4.5 percent off the Russell 2000 vis-à-vis the Russell 1000, according to our model.”

“This suggests that when stocks fell between February 19 and March 23, small caps fared poorer perhaps because they are not as liquid, on average, as their larger peers and their prices had to fall further in order to attract buyers,” the article said. “That said, small caps haven’t closed the gap with large caps since the market’s low in March even as the VIX retreated from its peak at around 85 to as low as 31 by early May.”

Here are a few funds ETF investors can use to get large cap exposure:

  • Vanguard S&P 500 Growth Index Fund ETF Shares (VOOG): seeks to track the performance of a benchmark index that measures the investment return of large-capitalization growth stocks in the United States. The fund employs an indexing investment approach designed to track the performance of the S&P 500® Growth Index, which represents the growth companies, as determined by the index sponsor, of the S&P 500 Index. The index measures the performance of large-capitalization growth companies in the United States.
  • Xtrackers Russell 1000 Comprehensive Factor ETF (DEUS): seeks investment results that correspond generally to the performance of the Russell 1000 Comprehensive Factor Index. The fund, using a “passive” or indexing investment approach, seeks investment results that correspond generally to the performance of the underlying index, which is designed to track the equity market performance of companies in the United States selected on the investment style criteria of value, momentum, quality, low volatility, and size.
  • SPDR Portfolio S&P 500 ETF (SPLG): seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P 500 Index. The index is designed to measure the performance of the large-capitalization segment of the U.S. equity market.

For more market trends, visit ETF Trends.