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Large Cap and Growth Funds’ Underperformance During Covid19


In this short article, I show that Large Cap and Growth funds managers, who should have performed well during the ongoing Covid-19 pandemic (Feb2020-Aug2020)1, have not performed well.

During the period Feb2020-Aug2020 (7 months), US Large Cap stocks outperformed US Small Cap stocks by 0.65%, US growth stocks outperformed value stocks by 27.37%. First, did Large Cap2 managers and growth3 managers outperform 4 the S&P500 (i.e. a blended benchmark)?

Large Cap, Small Cap, Mid Cap

Table 1 shows that Large Cap managers (vs S&P500) underperformed and Growth funds (vs S&P500) outperformed during Covid-19. To conclude, Large Cap managers did not protect during that downturn.

Second, do these funds managers underperform more during the downturn (Feb-Mar) or the recovery (Apr-Aug)?


Table 2 shows that the Large Cap managers (27% vs 35% for S&P500) and the growth managers (36% vs 54% for MSCI USA growth)massively underperform during the recovery Apr2020-Aug2020.


To conclude, large caps managers and growth managers which should protect during equity market downturns:

  • Performed the same as the S&P500 during the downturn.
  • Performed the same or lower vs the S&P500 during the recovery.
  • Massively underperform their respective Large cap and Growth indices.

What does this mean for a fund investor, assuming you wish to invest in mutual funds?

  • An S&P500 ETF is a preferable investment to a US Large Cap manager.
  • After an equity downturn6, it is wise to invest in growth managers.

Table 1: Funds vs indices returns during Feb 2020 - Aug 2020
Feb 2020 - Aug 2020 Return Remark
Fama&French US large minus small capitalization 40% Large stocks performed like small stocks
Fama&French US growth minus value capitalization 20% Growth stocks massively outperformed value stocks
US large caps managers 15% Large cap managers underperform by far the S&P500 (i.e. a large cap index) and the large benchmark. 28% managers only outperformed the S&P500.
US growth managers 15% Growth managers outperform by far the S&P500 (i.e. a blend value + growth index). 15% managers only outperformed the growth benchmark.

Source: AlternativeSoft, Morningstar, msci.com


Table 2: Funds Underperformance during Covid19
Feb 2020 - Mar 2020 returns Apr 2020 - Aug 2020 returns
US large caps managers -18.55%

(S&P500 = -19.57%)
(MSCI USA small caps = -29.65%)
27.83%

(S&P500 = 35.43%)
(MSCI USA small caps = 37.38%)
US growth managers -15.42%

(S&P500 = -19.57%)
(MSCI USA growth = -16.18%)
(MSCI USA value caps = -24.27%)
36.32%

(S&P500 = 35.43%)
(MSCI USA growth = 54.29%)
(MSCI USA value caps = 20.32%)

Source: AlternativeSoft, Morningstar.


1 See for example, Nancy Beneda, “Growth Stocks Outperform Value Stocks Over the Long Term”, Journal of asset management, September 2002.

2 I defined USA large funds with Strategy=Large cap in USA, blend or value or growth, 5’186 funds, no ETF. If the fund had no returns in Aug20 or/and Jul20, I wrote 0%, I did not eliminate any fund even highly negative returns during Feb20-Mar20 (i.e. funds closure after Mar20). I eliminated the funds with no returns at all during the period. There is a huge standard deviation for the Feb20-Aug20 cumulative returns, ranging from +144% for ‘GMO Special US Large Cap’ to -57% for ‘SEB Life US Large Cap’.

3 I defined USA growth funds with Equity style box = Large cap growth, Small cap growth, Investment Geography=North America. There is a huge standard deviation for the Feb20-Aug20 cumulative returns, ranging from +89% for ‘ARK Genomic’ to -3% for ‘Renaissance growth’.

4 We expect the stocks to do so according to theory, so I wanted to control for the funds’ managers.


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