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Quality in Small versus Large-Cap Stocks

Quality stocks outperform, right?

Nicolas Rabener
10 min read
30 Dec 2024

SUMMARY

  • Adding quality filters significantly improves small-cap investing
  • However, the opposite occurs in the large-cap space
  • Likely explained by more lower-quality companies in the small-cap space

INTRODUCTION

In the biblical fight between David and Goliath, most people favor David. Betting on the small guy to overcome power and adversity is universally appealing. However, in the stock market, David has been losing the fight as the size factor generated negative returns in 18 out of 21 stock markets over the last 30 years (read The Illusion of the Small-Cap Premium).

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