Presidential election years have historically favored small-caps

Presidential election years have historically favored small-caps

US large-cap equities, as measured by the Russell 1000® Index, outperformed US small-cap equities, as measured by the Russell 2000 ® Index, by close to 20 percentage points over the last year ended February 2024. However, this trend may break in 2024 as this is a presidential election year.

Since 1980, US small-caps have outperformed US large-caps in seven of 11 presidential election years. Furthermore, small-caps have outpaced large-caps in the six and 12-months following the election, as shown in the chart below. These small companies typically generate a greater percentage of their revenue in the US, providing the opportunity to benefit more from policy changes or economic growth relative to large companies.

Small-caps have historically outperformed large-caps in presidential election years since 1980

>Federal funds rate scenarios chart

Source: Morningstar.

What this means for investors

Due to the significant outperformance of large-caps, small-caps have likely become a smaller weighting in a well-diversified portfolio, not to mention that they are trading at a sizeable discount relative to large-caps. This may provide a compelling opportunity for investors seeking to rebalance their portfolios, by allocating to small-caps through an actively managed fund, offering the potential to outperform the benchmark through the cycle.


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

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