With stocks opening higher this morning, the Dow Jones Industrial Average (^DJI 1.01%) is now looking for its 10th consecutive winning day. Meanwhile, the broader S&P 500 (^GSPC -0.00%) would be happy to beat its all-time high of 1,565.15, set in October 2007. This has proven an elusive milestone so far -- surely it cannot be much longer now? The Dow and the S&P 500 are up 0.34% and 0.27%, respectively, as of 10:15 a.m EDT.
The style cycle has turned
According to fund-tracking company Lipper, the best-performing funds in 2012 were in the "value" category, which is now beating its "growth" counterpart for the first time in five years. Did value managers suddenly become more astute than their growth-oriented brethren? The answer is no, as the following annual-performance data for growth- and value-style indexes demonstrates (winning return in bold):
| Fiscal Year |
Russell 1000 Growth |
Russell 1000 Value |
|---|---|---|
|
2013 (YTD as of March 13) |
8.2% |
11.4% |
|
2012 |
15.3% |
17.5% |
|
2011 |
2.6% |
0.4% |
|
2010 |
16.7% |
15.5% |
|
2009 |
37.2% |
19.7% |
|
2008 |
(38.4%) |
(36.8%) |
Source: Russell Indexes. YTD = year to date.
The Russell 1000 Value beat the Russell 1000 Growth in 2012 for the first time since 2008. Keep in mind that the Russell style indexes are unmanaged vehicles: They are constructed according to an algorithm that ranks stocks according to factors including book-to-price ratio, forecast earnings growth, etc. My point is that if value managers are now beating growth managers, it is mainly a product of the style cycle.
It's interesting to note that the last year in which value outperformed was during a brutal bear-market drubbing, whereas value's current outperformance is occurring in (or, perhaps, despite) a bull market. Are investors acting more defensively than the headlines heralding all-time market highs suggest? In fairness, one of the reasons growth has been underperforming comes down to a single stock: Apple, the largest component in growth indexes. Apple shares are off nearly 40% from last year's all-time high.
What are the implications for investors? If you're mainly an asset-allocation investor, you'll already be tracking the style cycle closely. If you're a stock picker, it need not affect your stock selection, but it's worth knowing which headwinds or tailwinds your portfolio faces as you seek to realize its full value. Right now, it looks like value stocks have the wind in their sails.
