VTWO Has Outperformed Its Index, It's A Good Time To Sell

seekingalpha06-18

syahrir maulana For as long as I can remember, I've had a negative view on the Russell 2000 Index (RTY), and ETFs such as Vanguard Russell 2000 Index Fund ETF Shares (NASDAQ:VTWO) that track it. As ...

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As ...</p>\n\n<a href=\"https://seekingalpha.com/article/4699687-vtwo-has-outperformed-its-index-its-a-good-time-to-sell\">Source Link</a>\n\n</div>\n","source":"seekingalpha_fund","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>VTWO Has Outperformed Its Index, It's A Good Time To Sell</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nVTWO Has Outperformed Its Index, It's A Good Time To Sell\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-06-18 03:45 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4699687-vtwo-has-outperformed-its-index-its-a-good-time-to-sell><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>syahrir maulana For as long as I can remember, I've had a negative view on the Russell 2000 Index (RTY), and ETFs such as Vanguard Russell 2000 Index Fund ETF Shares (NASDAQ:VTWO) that track it. As ...</p>\n\n<a href=\"https://seekingalpha.com/article/4699687-vtwo-has-outperformed-its-index-its-a-good-time-to-sell\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"VTWO","symbol_name":"Vanguard Russell 2000 ETF","start_time":0,"source_url":"https://seekingalpha.com/article/4699687-vtwo-has-outperformed-its-index-its-a-good-time-to-sell","article_id":"2444119340","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1283342758/image_1283342758.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2444119340","pubTimestamp":1718653531,"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"syahrir maulana For as long as I can remember, I've had a negative view on the Russell 2000 Index (RTY), and ETFs such as Vanguard Russell 2000 Index Fund ETF Shares (NASDAQ:VTWO) that track it. As pe","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":["rate"],"viewcount":null,"language":"en","relate_stocks":{"VTWO":"Vanguard Russell 2000 ETF"},"translate_title":"VTWO的表现优于其指数，现在是卖出的好时机","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"VTWO":1},"content_text":"syahrir maulana For as long as I can remember, I've had a negative view on the Russell 2000 Index (RTY), and ETFs such as Vanguard Russell 2000 Index Fund ETF Shares (NASDAQ:VTWO) that track it. As per Table 1, I have written several articles that express this view. Table 1:   Article Date Rating Return vs. S&P 500   Negative Alpha - Who Wants That ... Sept. 20, 2022 Sell VTWO 15.06% vs. 40.86%   It's Selling Season For The Russell 2000 March 27, 2024 Strong Sell IWN -4.94% vs. 3.49%   Click to enlarge The Russell 2000 is a flawed index, and the articles in Table 1 outline the reasons why in some detail. However, briefly:  Most equity indices re-constitute quarterly, using an opaque process. By contrast, the Russell 2000 re-constitutes annually on the fourth Friday in June, and the market is made aware of the new constituents, with a high degree of probability (events such as bankruptcy can cause revisions) in early May.  Front running occurs, which can depress the returns of ETFs that track the index. The underlying stocks in the index are illiquid, meaning they have a wide Bid / Offer spread. This year's preliminary summary of changes estimated that 243 stocks would be added to the index, and 171 would be dropping out of it. This represents a turnover of more than 20% of the securities in the index, all happening in a short period of time. Losers from the Russell 1000 drop into the index, and winners from the Russell 2000 are promoted. The market cap of stocks with positive momentum that leave the index is much greater than those that are promoted. Similarly, the market cap of the stocks with negative momentum that drop into the index is much greater than those at the bottom, which drop out.   In the eight years from 2016 to 2023, the Russell 2000 has underperformed the S&P 500 (SP500) by a total of 28.4% during the months of May, June, July, and August. This is due to the Russell 2000's annual re-balancing of stocks on the fourth Friday of June, and the elevated transaction costs that occur at that time. Historically, a large proportion of the Russell 2000's constituents have been unprofitable. The long-term mean of companies with negative earnings in the index are approximately 20%, and in the fourth quarter of 2023, this figure was 30%, down from 40% in the preceding quarter. Other indices have quality screens. For example, if a firm's most recent quarter's earnings and the sum of its earnings for the trailing four consecutive quarters are not positive, then it isn't eligible for entry into the S&P 600. Several academic studies have concluded that this has been a statistically significant factor in explaining the S&P 600's outperformance. Of concern, to me in any case, is the fact that when computing portfolio statistics like P/E and Price / Book Value Ratios, the Russell 2000 omits companies with negative earnings. These makes these statistics meaningless, perhaps even misleading, for the purpose of comparing the Russell 2000 to other indices. Only the top 1200 (assuming 30% have negative earnings) out of 2000 stocks are used to compute portfolio statistics.    It's no secret that small caps have been a brutal investment over the past 10 years. Due to its flaws, the Russell 2000 has been the worst of a bad bunch, and this is also true of the ETFs that track it. So there is never a bad time to sell the Russell 2000, or ETFs like VTWO that track it. Now, however, is a particularly opportune time to sell VTWO. Recent Performance of VTWO We're in the middle of Selling Season for the Russell 2000. This excellent 2015 article from Morningstar cited two academic studies that analyzed data from 1990 to 2012. Both studies identified that the main source of the Russell 2000's historic underperformance was the month of May. The two articles in Table 1 examined updated information, for the years 2012 to 2024, and found that this period of underperformance had spread to the months of June, July and August. This seasonal weakness, as well as my longer-term negative view of the Russell 2000, led me to make a Strong Sell Rating, primarily on iShares Russell 2000 Value ETF (IWN), but also on other ETFs that track the Russell 2000, such as VTWO and Vanguard Russell 2000 Index Fund Inst (VRTIX). It's been a good call. All have done poorly, but relatively speaking, VTWO has been the best performer. So it's time to sell and look for other places to put your money. If you want to stay invested in small caps, this article might be helpful. Table 2: Total Returns     VTWO IWN IJR SPY   1 Month -4.08% -6.32% -5.70% +3.87%   3 Month -1.68% -1.98% -1.49% +5.55%   Year to Date -1.07% -4.82% -3.83% +14.32%   1 Year +6.49% +5.27% +6.05% +24.30%   3 Year -14.14% -13.19% -8.62% +27.80%   5 Year +31.49% +24.80% +36.94% +87.92%   10 year +73.46% +46.59% +89.79% +180.04%   Click to enlarge Although sometimes small caps make sense, you should never be long the Russell 2000. The Russell 2000 started trading on January 1, 1984, and for the next 11 years, it was the only small-cap index existing. Of the three major market cap weighted indices of that time, it had the lowest overall return. Data by YCharts Although the NASDAQ Composite Index (COMP.IND) had the best overall return over this period of time, it was also the riskiest index. Data by YCharts On October 28, 1994, the S&P Small Cap 600 Index started trading. Over the next seven years, once again the Russell 2000 underperformed every other index, including S&P 600. Also of interest is how the NASDAQ nearly tripled between September 1998 and March 2000, before crashing. Many have similar concerns about today's market. Data by YCharts The Internet Bubble, and its subsequent bursting between 2000 and 2002, set the stage for a decade of substandard returns by large caps. Although the Russell 2000 outperformed the S&P 500, once again, it underperformed the S&P 600, although only marginally. Data by YCharts However, since exiting the Credit Crunch in 2011, large caps have performed much better than small caps, particularly over the past three years. The Russell 2000 and ETFs like VTWO and IWN that track it have underperformed, not only SPDR® S&P 500 ETF Trust (SPY), but also ETFs such as iShares Core S&P Small-Cap ETF (IJR) that track the S&P 600. There is no reason to expect that this will change. Data by YCharts Conclusion The S&P 500 has had a great rally, long may it continue. However, it must be noted that it is also a very narrow-based rally, with the Magnificent Seven contributing a disproportionate amount of its overall return. Parallels have been drawn to the early 2000s when the Internet Bubble burst, and a decade of S&P 500 underperformance followed, with returns that didn't keep pace with inflation.  I actually see a number of differences between now and then, but it is a legitimate view. Accordingly, many are looking at small caps as a source of diversification. The Russell 2000 is not the optimal way to express this view, particularly at this time, when it suffers from seasonal weakness. Year to date, VTWO has outperformed the Index, and IWN by 3.75%, with 1.25% of this occurring in the past month. It's a good time to sell VTWO.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2444119340"}