The growth style continues to dominate in 2009

Posted by Tim Hope on 4/29/09 10:51 am

The growth style continued its dominance over the value style year-to-date through the 27th of April.  With many of the value indices struggling due to relatively outsized exposure to the financial sector, investors may be well served to evaluate how they are allocated between the growth and value styles. 

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Commodity Cliff Diving Bullish for the Growth Style

Posted by Tim Hope on 4/9/09 11:28 am

Historically falling commodity prices are bullish for the growth equity style.  As Ned Davis Research points out, such a condition also typically implies an economic environment as we have today of low inflation, low interest rates and slowing economic growth which tends to be bullish for growth stocks. 

Consider the current market environment.  The value indices have relatively high weightings within the energy and financial sectors that do not tend to benefit as commodity prices decline.  On the other hand, growth indices have large sector weightings in the technology and industrials sectors which tend to greatly benefit from lower commodity price inputs.  Further, in such an environment growth stocks tend to enjoy relatively greater product pricing power than value type stocks. 

Clearly, commodity prices have experienced a “cliff dive” of rapidly falling prices.  Such a dramatic drop is reflected in a historical look at the 12-month rate of change in the CRB Commodity Index.  Presently, it is coming off of a 34 year record low.  With the growth style dominating the value style in the first quarter of 2009, it would seem that the historical relationship is still intact. 

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Growth style beating the value style across capitalizations

Posted by Tim Hope on 3/6/09 10:36 am

The value style has a relatively large exposure to the financial sector.  For example, consider that the financial weighting of the Russell 1000 Value Index currently stands at about 20% in contrast to the 3% weight of the Russell 1000 Growth Index.  Given the dismal performance of the sector so far this year, the growth style is demonstrating significant relative outperformance over the value style.

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Growth and Value Earnings Turnaround

Posted by Tim Hope on 6/12/08 11:22 am

Positioning a portfolio to take advantage of a performance shift between the growth and value styles can be beneficial in terms of returns.  Earnings expectations in the growth style were up in the month of May which marked the third straight month of increases.  Interestingly, the same measure of expectations fell for the fourth straight month for the value style.  With growth beating value in 2007, the case can be made that 2008 may mark another year in favor the growth style.

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