Small Cap and Value outperform in lost decades
US equities have historically delivered flat to negative real returns during lost decades. The S&P 500 has posted a -0.2% annualized real return in such periods.
In contrast, Small Cap, Value, Energy, and Non-Durables have outperformed. Outside of lost decades, the S&P 500 has generated around 17% annualized real returns.
The study highlights the rotation of sector and factor leadership away from expensive, cyclical parts of the market during lost decades. Small, cheap, and insulated factors have tended to perform well in these periods.