Why Investors Earn Less Than Their Funds, and the Small-Cap Surge

Motley Fool Hidden Gems Investing

The Motley Fool

Investing, Business

4.3 • 3.1K Ratings

🗓️ 27 September 2025

⏱️ 22 minutes

🔗️ Recording | iTunes | RSS

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Summary

When evaluating a fund, one of the first sets of numbers you'll likely look up is its past returns. But those are not the returns that owners of that fund actually earned. Robert Brokamp speaks with Morningstar’s Jeff Ptak about which investor behaviors and types of funds are more associated with underperformance. Also in this episode: -The Russell 2000 finally surpassed its 2021 peak – what’s behind the small-cap surge?-The Treasury Department has released preliminary guidance about “no tax on tips”-The spread in yields between investment-grade corporates and Treasuries is the smallest it’s been since 1998-A lesson from the life and recent death of financial journalist Jonathan Clements: Don’t delay your bucket list until retirement Investments discussed: VOO, QQQ, VTWO, IWC Host: Robert BrokampGuest: Jeff PtakEngineer: Bart Shannon Advertisements are sponsored content and provided for informational purposes only. The Motley Fool and its affiliates (collectively, "TMF") do not endorse, recommend, or verify the accuracy or completeness of the statements made within advertisements. TMF is not involved in the offer, sale, or solicitation of any securities advertised herein and makes no representations regarding the suitability, or risks associated with any investment opportunity presented. Investors should conduct their own due diligence and consult with legal, tax, and financial advisors before making any investment decisions. TMF assumes no responsibility for any losses or damages arising from this advertisement. Learn more about your ad choices. Visit megaphone.fm/adchoices

Transcript

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0:00.0	Why investors earn less than their funds and the small cap surge?
0:08.5	This is the Saturday personal finance edition of Motleyful Money.
0:19.3	I'm Robert ProCamp, and this week I speak with Morning Stars Jeff Patak about research which
0:23.4	finds that fund investors earn lower returns than the funds themselves. But first, let's hit a few
0:29.0	highlights from last week in money. You know, the overall stock market has spent the past year
0:33.5	and a half hitting new all-time highs. It did run into a significant speed bump earlier this year, but then rebounded and hit even higher new highs. But not all stocks have been setting
0:42.7	new records, most notably small-cap stocks. That is, until recently. On September 18th, the Russell
0:49.2	2000 finally eclipsed its previous high set in 2021. It rose a bit higher on Monday of this past week,
0:56.3	then ended the week lower. But there's no doubt that smaller stocks have closed out the summer strong.
1:01.7	Since August 1st, the Vanguard 500, which of course tracks the SOPP 500, has returned 6.2%.
1:07.4	The Invesco Kukukyu ETF, which tracks the NASDAQ100, has returned 7.2%.
1:13.2	Meanwhile, the Vanguard Russell 2000 ETF has returned 11.3 percent, and the I shares microcap
1:20.1	ETF, which tracks the Russell MicroCap index, has returned 15.7 percent, as of the markets
1:26.1	close on September 25th. Now, the reason for this outperformance could be
1:29.9	just valuations. Just about any type of stock is cheaper than U.S. large caps, especially of the
1:35.2	growthier and techier variety. According to Yardinni research, the forward PE ratio for small
1:40.8	caps is 15.7 compared to 22.6 for the S&P 500 and 30.3 for the magnificent 7.
1:49.6	But it's also likely due to the belief that rate cuts from the Fed will benefit smaller companies,
1:54.7	which tend to rely more on credit. The companies are often too small to issue bonds,
1:59.0	so they have to turn to banks to get loans
2:00.9	with floating rates, which will likely head lower since the Fed cut the target for the Fed funds
2:05.3	rate last week, as had been expected and suggested we could see a couple of more cuts this year.
	...

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