Is small-cap value worth a look?

As the US equity markets reach new all-time highs, investors are in search of attractive opportunities. Looking at forward price-to-earnings (P/E) ratio ranges by style, small-cap value is the only segment currently trading within its interquartile range over the past 10 years. At 15.0x forward earnings, the Russell 2000 Value Index is near the 50th percentile of its historical range, whereas almost every other style box segment is trading at or above the 95th percentile.

Forward P/E ratio ranges during the past 10 years

Note: P/E measures exclude negative earnings. Forward P/E is on Institutional Brokers Estimate System (I/B/E/S) consensus next-12-months forecast earnings.

Sources: BofA US Equity & Quant Strategy, Russell Investment Group, I/B/E/S, and Compustat. Time period is 10 years from April 2011 to April 2021.

Past performance does not guarantee future results.

Investing involves risk, including the possible loss of principal.

What this means for investors

Given current valuations across US market segments, small-cap value offers the most attractive relative valuation.


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Investing involves risk, including the possible loss of principal.

Past performance does not guarantee future results.

Nothing presented should be construed as a recommendation to purchase or sell any security or follow any investment technique or strategy.

The views expressed represent the investment team’s assessment of the market environment as of June 3, 2021, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice.

Investments in small and/or medium-sized companies typically exhibit greater risk and higher volatility than larger, more established companies.

Market risk is the risk that all or a majority of the securities in a certain market – like the stock market or bond market – will decline in value because of factors such as adverse political or economic conditions, future expectations, investor confidence, or heavy institutional selling.

The Russell 1000 Index measures the performance of the large-cap segment of the US equity universe.

The Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe.

The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe.

The Russell Midcap Index measures the performance of the mid-cap segment of the US equity universe.

The Russell Midcap Value Index measures the performance of the mid-cap value segment of the US equity universe.

The Russell Midcap Growth Index measures the performance of the mid-cap growth segment of the US equity universe.

The Russell 2000 Index measures the performance of the small-cap segment of the US equity universe.

The Russell 2000 Value Index measures the performance of the small-cap value segment of the US equity universe.

The Russell 2000 Growth Index measures the performance of the small-cap growth segment of the US equity universe.

Frank Russell Company is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company.

The price-to-earnings ratio (P/E ratio) is a valuation ratio of a company’s current share price compared to its earnings per share. Generally, a high P/E ratio means that investors are anticipating higher growth in the future.

Charts shown throughout are for illustrative purposes only and not meant to predict actual results.

Chart is for illustrative purposes and is not representative of the performance of any specific investment.

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