(MoneyWatch) Small-cap growth stocks have been euphemistically called “the black hole of investing.” The reason is that they have produced the lowest returns of any of the major U.S. stock asset classes, even though they theoretically should perform much better. The following table shows both the annualized returns and the annual standard deviations for the period 1927-2011.*
Basically, the data lines up the way we would expect — the riskier the asset class, the higher the returns — with one glaring exception. Small-cap growth stocks should produce higher returns than large-cap growth stocks and large-cap stocks in general. Yet they’ve produced the lowest returns. In fact, while other subsets of small-cap stocks have outperformed large-caps, the performance of small-cap growth stocks has been so poor that the small-cap premium disappears completely.