Recently, there has been plenty of chatter about the possibility of the value factor staging a credible comeback, but the growth factor and the corresponding ETFs, SPDR Portfolio S&P 500 Growth ETF (NYSEArca: SPYG) remain steady.
SPYG is higher by more than 25% year-to-date and some market observers believe growth stocks can continue trading higher in 2020.
SPYG, which tracks the S&P 500 Growth Index, and rival growth ETFs can actually perform well late in the business cycle. Investors can still enhance their portfolios as the bull market extends with growth-oriented stocks that continue to perform despite the recent bouts of volatility. The growth style has outperformed the market in spite of being prone to sell-offs with strong corporate earnings.
“From a style perspective, growth continues to outshine value,” said State Street in a recent note. “Value remains 4.9% and 481 days away from its last all-time high, while growth just hit an all-time high. Value has recorded multiple years of underperformance relative to growth and the broader market, and it remains mired in an unfavorable cyclical trend.”
Spying On SPYG
Growth stocks may be seen as exorbitant and overvalued, causing some investors to favor value stocks, which are considered undervalued by the market. Value stocks tend to trade at a lower price relative to their fundamentals (including dividends, earnings, and sales). While they generally have solid fundamentals, value stocks may have lost popularity in the market and are considered bargain priced compared with their competitors.
Growth stocks are often associated with high-quality, prosperous companies whose earnings are expected to continue increasing at an above-average rate relative to the market. Growth stocks generally have high price-to-earnings (P/E) ratios and high price-to-book ratios. Still, data suggest the growth/value premium isn’t overly elevated relative to historical norms.
“Dissecting the US by sectors also reveals a dichotomy between market leaders and laggards,” according to State Street. “Growth sectors like Technology, Communication Services, and Consumer Discretionary have all hit all-time highs in 2019. In addition, defensive sectors like Utilities, Consumer Staples, and Real Estate have hit all-time highs as investors have sought out certain defensive, bond-proxy areas of the market given the low bond yields this year.”
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.