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Are mid and small cap index funds a better value than SP500 right now?
Posted on 9/29/22 at 7:41 pm
Posted on 9/29/22 at 7:41 pm
Take the Vanguard Extended Market Index Fund ETF (VXF) for example. It covers the nearly all of the stock market except for the SP500. It is down 36% from its 2021 high. You can buy it for roughly its August 2018 price. P/E ratio of 13.1.
Compare that to VOO (SP500 index fund) which is down about 24%. P/E ratio of 19.8.
Long term returns from both funds are nearly identical. I get that smaller companies hurt more in times of inflation/recession, so the lower valuation makes sense. But I see two advantages here: If there is a hard landing, I think VFX already has a lot of worst case priced in with it being closer to its bottom than VOO. And if the market turns around soon with a soft landing, VXF has a lot more room to run to get back to equilibrium with VOO.
It's not very often you can buy a highly diversified index fund at a 36% discount. Anyone else shifting away from the large caps?
Compare that to VOO (SP500 index fund) which is down about 24%. P/E ratio of 19.8.
Long term returns from both funds are nearly identical. I get that smaller companies hurt more in times of inflation/recession, so the lower valuation makes sense. But I see two advantages here: If there is a hard landing, I think VFX already has a lot of worst case priced in with it being closer to its bottom than VOO. And if the market turns around soon with a soft landing, VXF has a lot more room to run to get back to equilibrium with VOO.
It's not very often you can buy a highly diversified index fund at a 36% discount. Anyone else shifting away from the large caps?
2
Posted on 9/29/22 at 9:19 pm to MillerLiteTime
I think you’re on to something. But this market, for the intermediate future, is a whole new bag of worms. Uncharted territory.
Posted on 9/29/22 at 9:49 pm to MillerLiteTime
Strong case to be made the smid cap funds are priced well and offer nice upside.
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