There is no Small cap premium

[yuvaltaylor]

I was comparing the 300 stock model to the IWC ETF (Russell Microcaps). The sim assumes 0.35% slippage with $100K min turnover per stock and $1 per share. Nothing fancy in the trading rules other than a focus on stocks under $1B marketcap. Straightforward ranking system with rank>85 as a buy and rank<85 as a sell. It retains alpha if you increase that but turnover also increases. I wanted to lower turnover of portfolio somewhat. This truly is a simple ranking system built almost exclusively on 5 factors. I included 20% weighting towards an older Microcap system designed by Oliver Keating that I think most of us have a version of.

Beating IWC consistently using small caps is a heck of a lot easier than beating SPY consistently using small caps. And beating IWC says nothing about whether there’s a small-cap premium or not . . .