Micro Caps and Deep Value

Fama and French showed that, not only does Small Value beat the market, but the further you get into Small Value territory, the better. That means that a Micro Cap / Deep Value fund should be great. (Deep Value typically means the cheapest third or so, rather than the cheapest half, of the parent index.)

Let's be compulsive and see for ourselves, shall we?


Date range:   through  
Adjust for Inflation

    Annualized Returns
TSM: %
Small Value: %
Micro Cap / Deep Value: %


Buying Micro and/or Deep Value

Want micro-deep? Easy and cheap? Unfortunately your choices are limited (to zero - there really aren't any choices). But here are some indexes that will at least get you part way there:


Style Index Fund
Deep Value
Morningstar Small Value JKL
S&P 600 Pure Value RZV
DFA US Small Cap Value DFSVX
Micro Cap
(not value)
Russell Micro Cap IWC
Zacks Micro Cap PZI
Micro Cap, [Deep] Value (not offered!) -


The Morningstar index tends to deliver the lowest P/E; the fund's expense ratio is a little higher than a typical Small Value index fund.

The S&P pure value index has a "fish-nor-fowl" quality. It's a deep value slice of a handpicked parent index (the S&P 600); its size and value characteristics may depend on the future management of the S&P 600 itself.

Morningstar Snapshot
The DFA choices offer low P/B and small size, respectively. They generally aren't available to individuals unless you go through an intermediary and pay a premium.

Russell is a popular micro cap; you'd expect them to introduce a micro value (if not a micro deep) if they think there's a market for it.

PZI may be worth keeping an eye on, at least from a distance. As of early 2006 its Morningstar snapshot showed it to be close to a micro value; but style drift is to be expected since its index uses a "proprietary [i.e. secret] composite scoring system that measures companies on the basis of relative value and momentum."


Article Contents
Small Value Intro
Why Small Value?
Which Small Value?
Checking Significance
Checking Valuations
Books & Links

Article Contents
Index Funds Article


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