As for the future? Ben Joyce at BMO Nesbitt Burns says: “While the rally is vulnerable to some profit-taking in the immediate term, we believe a new bull market is under way.” - By Steve Ladurantaye
Ten short weeks ago, financial journalists celebrated a growth-stock renaissance in 2012, applauding the super-sized gains for growth funds and downplaying the performance of value-oriented counterparts. Year-to-date (through 10/1), large-company growth mutual funds had amassed 17.1 per cent whereas large-cap value mutual funds had picked up 14.3 per cent.
John Wagoner of USA Today explained that the lag had to do with the remarkable upside in Apple. The author also noted, albeit briefly, that the gap between growth and value had narrowed considerably in the third quarter. Astute readers would have been wise to recognize that such a narrowing was evidence of a style shift.
Not surprisingly, fiscal cliff fears and Apple's -25 per cent drawdown contributed to an ongoing migration to "Value Stock ETFs." So much so, in fact, that the value style for all market capitalization levels (i.e., large company, mid-sized company, small company) beat the growth style at all market capitalization levels over the past one, three and six months.
Growth ETFs vs. value ETFs: Which group really has the momentum? | ||||||
1 Mo per cent | 3 Mo per cent | 6 Mo per cent | ||||
Vanguard Small Value (VBR) | 7.0 per cent | 1.3 per cent | 11.3 per cent | |||
Vanguard Small Cap (VB) | 6.5 per cent | 0.4 per cent | 10.1 per cent | |||
Vanguard Small Growth (VBK) | 6.2 per cent | -0.5 per cent | 8.9 per cent | |||
Vanguard Mid Value (VOE) | 5.3 per cent | 2.0 per cent | 10.5 per cent | |||
Vanguard Mid Cap (VO) | 5.2 per cent | 1.2 per cent | 8.6 per cent | |||
Vanguard Mid Cap Growth (VOT) | 5.0 per cent | 0.5 per cent | 6.7 per cent | |||
Vanguard Large Value (VTV) | 4.6 per cent | 0.7 per cent | 8.2 per cent | |||
Vanguard Large Cap (VV) | 3.9 per cent | -0.8 per cent | 7.1 per cent | |||
Vanguard Large Growth (VUG) | 3.2 per cent | -2.3 per cent | 6.0 per cent | |||
A key takeaway here is that for all the concerns about the fiscal cliff's adverse impact on dividend stocks, tax-gain harvesters went after their biggest capital appreciators (e.g., Apple, etc.) with an equal amount of ardour. It seems that in the end, slower-growing dividend yielders still provide a measure of safety in volatile markets; value trumps growth during squeamish bulls.
Even if you'd rather look at the year in aggregate, rather than over the last six months, value is still on top. At Seeking Alpha Bill Maurer looked at the year-to-date performance (through Dec. 17) of iShares ETFs. iShares Russell 1000 Value outperformed iShares Russell 1000 Growth, iShares Russell Midcap Value outhustled iShares Rusell Midcap Growth and iShares Russell 2000 Value beat iShares Russell 2000 Growth.
Granted, when tilting a portfolio one way or another – big, small, value, growth, high beta, low beta – the move must be made when the trend is in its early stages of development. It follows that what has already transpired may not be indicative of what will transpire in the weeks and months ahead.
One method for determining significant changes in relative strength is to check price ratios. A rising IWD:IWF price ratio tells me that the trend favouring value is still intact. Moreover, as long as IWD:IWF remains above an intermediate-term moving average like the 100-day, I am favouring dividend and value producers.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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