A sharp-eyed client with decades of capital markets experience pinged us this morning with a question about US Value versus Growth stocks from the March 23rd bottom. We always figure that if one client emails, then 10 are thinking the same thing. So, let’s talk about this:
#1: First up, here’s the performance data:
S&P 500 Value (using the IVE ETF as a proxy):
- Price return from March 23rd to today: +31.0%
- Price return of the first week off the lows: +18.1%
- Return from one week post-bottom to now: +10.9%
S&P 500 Growth (IVW):
- From March 23rd to today: +30.7%
- First week after the lows: 15.9%
- Return from one week post-bottom to now: +12.7%
Russell 2000 Value (IWN):
- From March 23rd to today: +33.7%
- First week after the lows: +14.9%
- Return from one week post-bottom to now: +16.3%
Russell 2000 Growth (IWO):
- From March 23rd to today: +36.7%
- First week after the lows: +15.0%
- Return from one week post-bottom to now: +18.9%
The upshot here: in large caps, Value has pipped Growth at the post off the bottom, but that small excess return occurred in the first week after the March 23rd lows. Since then, Growth has done better. In small caps, Growth is ahead of Value from the lows and both bounced about the same in the week after March 23rd.
#2: What’s the better place to be now – Growth or Value, small cap or large?
- The sector concentrations among these four choices are wildly different, so this is less about investment style and more about industry substance.
- Largest weightings in S&P 500 Value: Health Care (21.5%), Financials (18.4%), Consumer Staples (10.9%). Technology is just 8.4%
- In S&P 500 Growth: Technology (38.0%, half of which is Apple and Microsoft), Consumer Discretionary (14.5%, half of which is Amazon), and Communications (12.5%, just over half of which is Google and Facebook).
- Largest weightings in Russell 2000 Value: Financials (28.5%), Industrials (12.5%), Technology (11.5%) and Real Estate (11.1%).
- In Russell 2000 Growth: Health Care (34.6%), Technology (18.1%), Industrials (17.0%) and Consumer Discretionary (10.3%).
The upshot here: in large caps, our pick is Growth over Value simply because we think Health Care is fully valued and Financials face fundamental headwinds. In small caps, our choice is “neither”, since Value is 40% Financials/Real Estate (tough neighborhoods for small companies just now) and Growth is 35% Health Care.
#3: Summing up: our key point is that “Value” and “Growth” have lost a lot of their meaning over the years as almost entire sectors move into one bucket or the other. We started our career working at Alliance Capital, a growth shop. Then we covered a Value sector, the autos, for a decade-plus. Now, we’re not even sure what purpose these designations even have any more.
As a wily old trader once told us “the bank doesn’t ask how closely you held to your investment style when you cash your paycheck. Just make money, man…”