Tuesday, November 17, 2020

The Tide Might Be Going Out On Growth

The dominant investment theme since the financial crisis in 2008/2009 has been the outperformance of the growth investment style versus the value style, evident in the large, mid and small cap stock space. As the below chart shows, growth has dominated value in large caps since 2008 and has accelerated higher this year.

Over the past few months though, the value style has been leading growth. As a word of caution though, during this strong growth cycle over the past 12 or so years, there have been a number of times where value began to outperform, yet to only last a few short months.

From a sector perspective, the leading S&P 500 Index sectors since the beginning of September are, Industrials, Materials, Utilities, Financials and Energy. For the most part these sectors are value oriented and economically sensitive ones. At the bottom of the performance in the below chart is the technology sector.

And finally, it seems most of the investment discussion over the past few years has been the dominance of the FANGMA trade, i.e., Facebook (FB), Amazon (AMZN), Netflix (NFLX), Google (GOOGL), Microsoft (MSFT) and Apple (AAPL), easily classified as growth type stocks. One can understand why the interest in this basket of stocks by simply looking at the return of the group. On an equal weighted basis the FANGMA basket is up 47.5% this year with the S&P 500 Index return up a respectable 14.1%. The below chart displays several other asset class returns for comparison purposes. 

Just like growth is underperforming value over a shorter time frame, the FANGMA basket of stocks is underperforming other U.S. asset classes. As the below chart shows, the FANGMA basket is the worst performing segment since 8/31/2020 versus small cap, midcap and the equal weighted S&P 500 Index. In short, the FANGMA trade is representative of the Stay At Home trade that may now be unwinding with the recent favorable COVID-19 vaccine news.

Time will certainly tell if value is finally going to exhibit performance leadership over a longer time frame. Nonetheless, investors are wise to pay attention to this transition so not to miss potentially favorable investment opportunities.

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