By Todd Shriber via Iris.xyz
After years of lagging growth, the value factor needs more than just one month of out-performance to cement a comeback, but July could provide proof large-cap value stocks are on the mend against their growth counterparts.
Last month, the S&P 500 Growth Index and the S&P 500 Value Index returned 3.44% and 4.05%, respectively. Stocks are designated as value plays when market participants view the shares as attractively valued relative to earnings growth, value of assets or intrinsic value.
Historically, value stocks have outperformed their growth rivals over long holding periods, making value’s laggard status in the current bull market for U.S. equities something of an anomaly. From the start of the current U.S. bull market on March 10, 2009 through July 31, 2018, the Russell 1000 Growth Index returned about 426% compared to “just” 377.60% for the Russell 1000 Value Index. That is unusual because from mid-1927 through the end of 2014, the annualized return for value stocks, as measured by the Fama/French U.S. Large Value Index, was 11.94% compared to 9.50% for the Fama/French U.S. Large Growth Index.
Sector attribution goes a long way toward explaining value’s laggard status in the current bull market. Growth has been propelled higher by the technology and consumer discretionary sectors. As of Aug. 9th, 2018, those sectors combined for 59.57% of the Russell 1000 Growth Index, but the Russell 1000 Value Index’s combined exposure to tech and consumer cyclicals was just 18.01%.
An area of potential vulnerability for large-cap growth is the FAANG quintet – Facebook Inc. (FB), Amazon.com Inc. (AMZN), Apple Inc. (AAPL), Netflix, Inc. (NFLX) and Google parent Alphabet Inc. (GOOGL). Those stocks combine for 22.10% of the Russell 1000 Growth Index, indicating the index could be tested by FAANGs retrenchment. Predictably, other sectors drive value’s performance.
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