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Growth Vs. Value

Mar 15 2023

Masquerade Party

  • Mar 15, 2023

Style investors recently witnessed a rare event when, on February 13th, the P/E ratio of the S&P 500 Growth Index fell below that of the S&P 500 Value Index. At first glance, it is tempting to attribute this valuation flip-flop to the 2022 bear market, which saw Value outperform Growth by a whopping 24.2%. However, the bear-induced collapse of Growth stock prices in 2022 only served to return the P/E spread to a level just below its historical median of 5.1, meaning that the final move toward parity was caused by a force outside the market itself. That “something else” was the S&P 500 style reconstitution that occurs annually on the third Friday of December.

Mar 07 2023

Weight Watcher Update—Still Like Value Sectors

  • Mar 7, 2023

While the valuation gap between Growth and Value sectors was compelling just a couple of years ago, it has closed drastically the last twelve months. Our analysis shows that Value sectors (Energy, Industrials) are still more favorable than Growth sectors (IT, Health Care).

Mar 07 2023

Three Themes To Watch

  • Mar 7, 2023

The China-reopening theme is alive and well, which will likely support cyclical outperformance. The disinflation trade is at a crossroads. Value/Growth started to decouple from interest rates.

Mar 06 2023

Research Preview: I Own What?!

  • Mar 6, 2023

S&P rebalanced its style indexes in December, and the shuffle caused substantial turnover. The Value index now includes a sizeable swath of mega-cap tech companies, and this changing membership significantly affects the relative valuation metrics that defined those styles.

Jan 24 2023

Is Value Still A Value?

  • Jan 24, 2023

Deflating valuations in the Technology and Innovation space produced ghastly results for growth investors in 2022, with the S&P 500 Growth index experiencing an agonizing 29.4% loss. Meanwhile, last year’s bear market was no more than a mild irritation for value investors as the S&P 500 Value index lost just 5.2%. The collapse in exuberantly priced growth stocks produced a 24.2% return spread between the value and growth styles, which goes into the record books as the second biggest annual win for value since 1975.

Aug 05 2022

Additional Factors

  • Aug 5, 2022

The six-week rally that started mid-June featured advances from AAPL (+25%), AMZN (+30%), and TSLA (+39%), which accounted for one-fourth of the S&P 500’s gain. Despite the recent preference for Value, a spike in interest rates, and the bear market, the index’s concentration in the top-five firms is still near it’s all-time high set in August 2020.

Feb 22 2022

The Mysterious Affair of Style Returns

  • Feb 22, 2022

Mystery writers are fond of creating misdirection by introducing multiple eyewitnesses that each describe the crime differently. This plot device confuses the storyline until a clever detective comes forward to unravel the conflicting evidence and solve the mystery. 

This scenario played out in style returns for 2021, as shown in Table. Our first witness is a large cap manager who tracks the S&P 500 and reports another banner year for Growth, its seventh win in the last ten years. Our second observer is a small cap manager who watches the broader market and tells of Value’s excellent year. Meanwhile, our third bystander is an international manager tracking EAFE, who reports seeing a whole lotta’ nothing in the style derby last year. In this study, we channel our inner Hercule Poirot to determine what, in fact, did happen across domestic style returns in 2021.

Feb 04 2022

Research Preview: A Playground Scuffle Between Value And Growth

  • Feb 4, 2022

It is a scene easy to imagine: Two children on the playground arguing about who’s the top dog. This schoolyard scuffle played out in 2021 between the Value and Growth styles, with each claiming bragging rights from their own perspective.

Jan 19 2022

Speculating In “The Nebs”

  • Jan 19, 2022

One measure of a bubbly bull market is the degree of speculative fervor embedded in the prices of companies with nebulous, indeterminate, or even nonexistent intrinsic values. Since the bear market low in March 2020, speculative manias have evolved in a menagerie of asset classes including Innovators & Disruptors, SPACs, meme stocks, crypto currencies, and NFTs. Based on the breadth of valuation extremes across numerous and diverse assets, this bull market may rank second to none.

Aug 05 2021

Digging Out Of The Red

  • Aug 5, 2021

An unprecedented number of companies are still deep in the red, even while the economy is shrugging off the impact of the pandemic. Small-cap growth companies are showing no sign of a quick recovery.

Jun 16 2021

Schrödinger’s Style Box

  • Jun 16, 2021

The performance derby between actively managed portfolios and passive benchmarks is strongly influenced by market conditions.  Active manager success rates are cyclical, but not random, and are driven by slippage created from style, size, and weighting considerations that result from the imperfect slotting of active portfolios into single style boxes.  Moreover, this slippage can be defined and measured, and shows a clear correlation with relative return spreads between benchmarks and their opposite boxes.

Mar 17 2021

Valuation Extremes: Here Be Dragons

  • Mar 17, 2021

Top decile valuations are often the result of unduly positive investor sentiment that leads to inflated multiples. Bullishness comes in varying strengths: optimism, enthusiasm, exuberance, and, at the extreme, the mania of crowds. Because bullishness manifests itself in aggressive valuations for speculative companies, we believe the prices being applied to such companies - for which intrinsic value is dependent on a future that looks significantly different than today - are an excellent measure of investor sentiment. In that spirit, we examined past cycles of extreme valuations with the goal of understanding how they relate to investor sentiment and what they might tell us about market conditions and relative returns.

Mar 04 2021

Research Preview: A Tale Of Two Tails

  • Mar 4, 2021

Top decile valuations, such as those in place today, are usually the result of excessively positive investor sentiment that leads to inflated multiples. Bullishness comes in varying strengths: optimism, enthusiasm, exuberance, and, at the extreme, the mania of crowds. Leuthold research typically tracks valuation sentiment by examining median P/E ratios, but in this study, we are taking the opposite tack. Rather than looking at medians, we are focusing on the outliers in each tail of the valuation distribution.

Feb 12 2021

Kindred Spirits: Financials And The Value Style

  • Feb 12, 2021

Investors looking for the long-awaited rebound in the Value style point to the potential for rising interest rates as a possible driver of style rotation. Higher rates would benefit many Financial companies, a sector closely linked to the Value style. In fact, many commentators believe that the Value style cannot experience a major run without the participation of Financials. We launched a research effort to examine the link between Financials and Value, seeking to understand whether there is truth in this old saw, or whether this connection is more properly classified as market folklore.

Feb 04 2021

Research Preview: Are Financials And Value “Best Friends Forever?”

  • Feb 4, 2021

Investors looking for the long-awaited rebound in the Value style point to the potential for rising interest rates as a possible driver of style rotation. Higher rates would benefit many Financial companies—a sector closely linked to the Value style. In fact, numerous commentators believe that Value cannot experience a major run without the participation of Financials.

Jan 22 2021

Inaugurations And The Stock Market

  • Jan 22, 2021

Presidents and the popular press have become obsessed with performance over the “first 100 days” in office. That prompted us to see if there have been any persistent stock market effects related to this 100-day window. There are many ways to slice the data, and the more we sliced it, the fewer the observations.

Jan 15 2021

Rising Rates And Rising Stock Prices?

  • Jan 15, 2021

Often, what market pundits like to pass off as bold, contrarian forecasts are merely rationalizations and extrapolations of trends that have already been in place for some time.

Nov 06 2020

Small Value Or Small Growth? Yes!

  • Nov 6, 2020

If there’s an emerging bubble in Growth stock investing, it certainly doesn’t apply to Small Caps. The “usual” premium for Growth over Value within the Small Cap space is nonexistent—both segments look historically cheap.

Aug 12 2020

Growth Wherever You Find It

  • Aug 12, 2020

Growth investing is in the midst of a spectacular run this year, extending its decade-long dominance over the Value style. Chart 1 depicts the Growth / Value relationship over the last 25 years through July 31st, with key turning points marked by vertical lines.

Aug 06 2020

Research Preview: Growth, Pure And Simple

  • Aug 6, 2020

Growth investing is in the midst of a record run this year, extending its decade-long dominance over the Value style.

Jul 10 2020

The Growth Style’s Twin Peaks

  • Jul 10, 2020

The strong market rebound in the second quarter lifted the relative return of Growth vs. Value to an all-time high by the end of June. Chart 1 reveals that the cumulative S&P 500 Growth / Value return spread hit a new record last month, surpassing the previous high reached at the end of the Tech bubble in June 2000. 

Jun 04 2020

Money Losers Among Small-Cap Growth

  • Jun 4, 2020

Late last year, we presented data showing that profitability has become more elusive for small companies despite a record-long period of economic expansion. We discussed the potential causes underlying this phenomenon.

Sep 20 2019

Box Jumpers Beware!

  • Sep 20, 2019

Style rotation! Regime change! Market action of the first two weeks of September coaxed the few remaining Small Cap Value managers off ledges from New York to San Francisco.

Apr 05 2019

1999 Redux

  • Apr 5, 2019

As the market rebound has extended, we’ve noted its striking similarities with the rally of 1999—one that might have been the most speculative in U.S. history.

Mar 22 2019

Partying Like It’s 1998-99

  • Mar 22, 2019

We thought Jerome Powell’s “Christmas Capitulation” would be tough to beat, but he accomplished that two days ago with what could be called his “Spring Surrender.” That, in turn, has rekindled hopes of a stock market melt-up along the lines of 1998-99, which, as old-timers will remember, followed a late-cycle correction that was nearly identical to the one seen last year.

 

Jul 06 2018

Try This On For Size

  • Jul 6, 2018

Today’s market is barbelled regarding company size, with the mega-cap Tech stocks and the S&P 600 Small Cap index both outperforming the middle of the S&P 500.

May 23 2018

Value Style’s 100-Year Flood

  • May 23, 2018

Value is the philosophical cornerstone of many legendary portfolio managers and is widely recognized as one of the most robust quantitative investment factors. Yet, despite its compelling conceptual merits and long-term record of superior returns, recent years’ underperformance of Value has lasted long enough to weigh on even 10-year performance records. 

Jan 11 2018

Growth: Too Much of a Good Thing?

  • Jan 11, 2018

Growth has trounced Value over the past year, continuing a decade-long trend of outperformance...

Oct 06 2017

Valuation-Based Country Selection/Rotation

  • Oct 6, 2017

Despite cyclicality, over the longer term, investing in lower valuation countries ekes out better performance in an EM portfolio, and Dividend Yield showed the most consistency in terms of value factor effectiveness.

Jun 07 2017

Dynamic Factor Investing: A Study In Value

  • Jun 7, 2017

Investment factors experience performance cycles just like every other asset and index. The Value factor is robust across definitions, as all eight versions produced positive excess returns under long/short and long-only methodologies.

Sep 08 2016

Same Ponds, Different Fish?

  • Sep 8, 2016

The impact of atypically-high current valuations has become a challenge for style-box investing. High quality, mature dividend payers have habitually resided in the Value and Blend boxes, but investors have bid up those valuations as they look for alternatives to low bond yields.

Apr 07 2016

Growth vs Value vs Cyclicals

  • Apr 7, 2016

Signs of a leadership change are starting to spring up between Growth and Value. Since mid-2015, Mid and Small Cap Value stocks have outperformed Growth.

Mar 07 2016

Growth vs Value vs Cyclicals

  • Mar 7, 2016

Small Cap Growth stocks have gotten off to a rotten start in 2016—down almost 12%. On a relative basis, the segment has also been lagging Small Cap Value—underperforming by 9% since last July.

Jul 08 2015

Navigating The First Rate Hike

  • Jul 8, 2015

Our current view is the lift-off will be December or later. Assuming inflation will pick up and the Fed hikes the rate by the end of 2015, stocks will perform relatively well, with international stocks a better bet than U.S. stocks.

Apr 08 2015

Mythbusters: Style Performance During Bear Markets

  • Apr 8, 2015

Will Rogers said, “It isn’t what we don’t know that gives us trouble, but what we know that ain’t so.”

Sep 05 1994

Why We Are Buying Big Cap Growth Stocks Now

  • Sep 5, 1994

Big cap growth stocks appear to be in the early stages of regaining leadership from the “tired” cyclicals and “overvalued” value stocks.

Aug 05 1994

In Search of Blue Chip Growth Stocks

  • Aug 5, 1994

Growth stocks have been out of favor over the past 3-4 year, but look poised to regain leadership over the next 6-12 months.

May 05 1992

Did Your Stocks Make Money In April?

  • May 5, 1992

A glance at the popular market averages made April look like a pretty good month in the stock market. But if your equity performance in April matched those numbers, you must have had a well-oiled portfolio of deep cyclicals.

Sep 05 1991

August Insights

  • Sep 5, 1991

Secondary stocks’ August performance, growth vs. cyclical and growth vs. value performance, S&P and DIJA historical valuations and the Royal Blue Index.

Aug 05 1991

Adding To “Undervalued & Unloved” Stocks

  • Aug 5, 1991

This month we added three new stocks from Jim Floyd’s “Undervalued & Unloved” screening work, boosting our current commitment to value stocks to 16% of portfolio assets. We now believe Value's downtrend has reversed and this view seems to be confirmed by the relative strength line.