The much-publicized success of value stocks in 2019 looks different when you drill down into specifics, Karen Firestone writes.
However, growth tops value when looking at the Russell 1000.I have written before about the shift that appeared first in September when investors dumped their tech-heavy winners and bought barrels of underperforming financials, industrials, old-tech names, and even banks. My interest was more than academic; being on the wrong side of that trade, our firm experienced some of the worst singles days of relative performance in our fourteen-year history. So, I was motivated to understand its source.
At the time, it almost appeared as if investors chucked the top-performing decile of the S&P in exchange for the bottom fifty. I, while dramatic and painful, was unlikely to hold down those growth stocks that could satisfy the market's appetite for strong earnings acceleration. The fact that our portfolio stopped its slide and my heart rate settled down was evidence that buyer interest was broadening to include banks, biotech, retail, and energy, as well as many prior winners.
Something, however, kept nagging at me. In fact, almost every day, for the past three months, we have heard or seen comments by the financial media telling us that value is outperforming growth. What has bothered me about that concept is that the technology sector was barreling toward a 50% gain for the year, well above any other sector.
The S&P Value Index, in fact, outperformed the Growth Index in 2019, as shown in the charts below with almost a 5% premium during the last four months of the year. I was scratching my head – how can that be? A close look at the constituents of the S&P Value and Growth indices offers a somewhat misleading key to the puzzle. Its name isBoth S&P and Russell have their secret sauce for placing stocks in either the growth or value bucket.
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