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Fund Spy

Morningstar Fund Spy

Not So Chaotic After All?
Many of us assume (with some evidence to back us up) that large-cap value funds are the least risky of the nine style-box groups, followed more or less in order by the other style categories all the way down to small-cap growth, the riskiest group. So when the stock market plunges, large-value funds should fall the least. Lo and behold, amidst the tumult of the recent U.S. market plunge, the average August returns (i.e., losses) for these fund categories fit the expected pattern almost exactly. The category with the mildest loss was large value, at -14.2%, and the hardest hit was small growth at -22.3%, with most of the others falling neatly into line. Only small value, which held up a couple of percentage points better than it "should" have, broke the pattern to any significant degree.

This doesn't mean everyone should immediately pile into large-value funds or that this pattern will automatically hold every time the market takes a dive. But at a time when so many guidelines seem to have gone out the window, it's comforting to see at least some time-worn verities remain intact.