logo
  Join        Login             Stock Quote

Are Large-Cap Value Stocks At A Bullish Turning Point?

 February 12, 2013 12:18 PM


Has the drought for the large-cap value risk premium run its course in the US stock market? Reviewing recent history suggests a cautious "yes," based on comparing the rolling one-year performance spread for the Russell 1000 Value Index less the Russell 1000 Growth Index.

Since March 2008, large-cap growth has delivered superior performance relative to value stocks. Suffice to say, growth has had a good run. A $100 investment in the Russell 1000 Growth Index on March 31, 2008 would have grown to $135 on a total return basis through the end of last month (January 31, 2013). By contrast, a $100 investment in the Russell 1000 Value Index, by contrast, would have increased to $120 over that span.

[Related -La Jolla Pharmaceutical Company’s (LJPC): Mr. Everything Keeps on Buying, and Buying, and…]

But that was then. Is the dynamic set to turn in favor of value stocks? The answer will be obvious only in hindsight, of course. But history reminds that there are cycles to value and growth, with one or the other dominating for extended periods, as the chart above shows. Accordingly, it's reasonable to expect that growth cycle will end... one day. Exactly when is debatable.

One reason why this cycle exists at all may be partly due to behavioral reasons. It's always difficult for the crowd to consider that a long-running trend has ended. Recall that the previous run of relatively weak performance for value stocks in the late-1990s was accompanied by cries that this risk factor had permanently crashed. Growth at the time was all the rage, and some value-oriented managers threw in the towel. Others changed strategies and gravitated toward growth. It all looked quite sensible. Growth, after all, had been the dominant risk factor.

[Related -Weyerhaeuser Co. (WY) Q2 Earnings Preview: Some Warning Signs]

But just when it seemed that the case for value investing was dead, the zombie emerged from the grave. For roughly eight years, starting in early 2001, large-cap value stocks beat their growth counterparts.

Then in early 2008, the trend reversed again, and growth became the leader. Five years on, the question is whether the cycle is set to reverse once more? No one really knows, of course, although the possibility that we're at a turning point looks a bit more plausible these days. The return spread between large-cap value and growth stocks has been roughly even so far in 2013, with a small bias in favor of value. Is this a pause before growth resumes its dominance? Or is value about to lead anew?

Minds will differ, as always, in real time. What to do? If you have a dedicated allocation to value and growth, no doubt your growth stocks are above their target weight, assuming you've held the portfolio for several years and let it wander at Mr. Market's discretion. If you haven't rebalanced recently on the value/growth axis, now's a good a time as any. Unless, of course, you're confident that growth will continue to outperform.
iOnTheMarket Premium
Advertisement

Advertisement


Post Comment -- Login is required to post message
Name:  
Alert for new comments:
Your email:
Your Website:
Title:
Comments:
 

rss feed

Latest Stories

article imageIntegrated Device Technology Inc. (IDTI) Q1 Earnings Preview: Another Beat and Pop?

Integrated Device Technology Inc. (NASDAQ:IDTI) will issue first quarter 2015 financial results on July 28, read on...

article imageHerbalife Ltd. (NYSE:HLF) Q2 Earnings Preview: The Potential To Shock?

Herbalife Ltd. (NYSE:HLF) will release its second quarter 2014 financial results after the close of trading read on...

article imageHealth Net, Inc. (HNT): Potential to Be Huge Winners Says Bank of America

As of this keystroke, Health Net, Inc. (NYSE: HNT) shares are up around 4% on the day. The managed health read on...

article imageHomeAway, Inc. (AWAY) Q2 Earnings Preview: Top and Bottom Line Bullish Surprise?

HomeAway, Inc. (NASDAQ:AWAY) will report its financial results for the second quarter ended June 30, 2014 read on...

Advertisement
Popular Articles

Advertisement
Daily Sector Scan
Partner Center



Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.