Past Performance Does Not Guarantee Future Results…. Particularly the RECENT Past

The FTSE Russell 2500 Growth Index* (R2500G) is considered the benchmark for small and mid-cap growth stocks. In our White Paper on finding safe investments, we presented a few brief charts proving that, contrary to popular perception, the performance of growth and value had been tied between 2010 – 2017.

Published in August of 2021, we noted that growth had crushed value since the start of 2017 in Large Cap.  Specifically, the Russell 1000G rose over 184% while the Russell 1000V rose “only” 118%.  That same effect is even more pronounced comparing the Russell 2500 Growth and Russell 2500 Value Indexes. 

The growth variant of the index rose 128%, while the value variant rose only 53%, a whopping 75% spread.  Since we authored that piece, the spread has begun to collapse.  That recent compression – where value has begun catching up to growth – has led many folks to ask us if we think they “missed” the value rotation.

This paper makes the following three points:

  • The mean reversion in the 2500 benchmarks will continue, with growth falling sharply relative to value
  • The reason for this is painfully simple in our view
  • Allocators should move from index funds to active managers in the R2500G sector

The chart below shows that the percentage of firms in the Russell 2500 indexes that lose money is falling from highs of ~50% in Growth and ~35% in ValueAs this paper will show, history suggests the loss-making firms in the R2500G will inflict severe damage on their owners compared to their profitable neighbors in that same index.

The Percentage of Stocks in the R2500G Losing Money has NEVER Been Higher


Mid and Small Cap Mean Reversion: Will Value Trounce Growth?

The chart below shows

  1. As a reminder for our Financial Advisors: our models are available on a continuous basis, and most have been in production for over a decade.  If you are looking for simple, concentrated, low turnover, and tax efficient model portfolios we would like to talk with you.  KCR also offers a wide range of easy-to-use but sophisticated tools.  Our toolkits can help identify mispriced stocks with the best and worst risk/reward characteristics, estimate a stock’s duration and warn you when a company is engaging in low-quality accounting. Over the last 12 years, KCR has built and offers time-tested and class-leading products built by experienced and proven money managers for fixed to low prices.
  2. Kailash Capital’s sister company, L2 Asset Management, runs market neutral, long/short, large-cap, and mid-cap long-only portfolios with a value and quality bias.  L2 employs a highly disciplined investment process characterized by moderate concentration, low turnover, high tax efficiency, and low fees. While nobody can predict the future, we believe the recent resurgence in risk-adjusted returns seen across all products is the beginning of what may be a long period where speculation is punished, and prudence and patience rewarded.
The topics discussed in this article are aimed at seasoned professionals, as such, we have included some extra for anyone seeking out more information related to the topics above.


[1] The easiest way to find our collection of papers is to simply enter the following, with the quotations, into google search: “Kailash Concepts” “losing money”


The information, data, analyses, and opinions presented herein (a) do not constitute investment advice, (b) are provided solely for informational purposes and therefore are not, individually or collectively, an offer to buy or sell a security, (c) are not warranted to be correct, complete or accurate, and (d) are subject to change without notice. Kailash Capital, LLC and its affiliates (collectively, “Kailash Capital”) shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information herein may not be reproduced or retransmitted in any manner without the prior written consent of Kailash Capital. In preparing the information, data, analyses, and opinions presented herein, Kailash Capital has obtained data, statistics, and information from sources it believes to be reliable. Kailash Capital, however, does not perform an audit or seeks independent verification of any of the data, statistics, and information it receives. Kailash Capital and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your tax, legal, and accounting advisors before engaging in any transaction. © 2021 Kailash Capital, LLC – All rights reserved.

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February 2, 2022 |

Categories: Quick Takes

February 2, 2022

Categories: Quick Takes

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