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Value Has Trailed Growth, But That Won't Always Be The Case

Jun. 09, 2020 3:46 AM ET
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  • The long-term history of the stock market shows that growth stocks do not always dominate.
  • Despite the duration of the current large-cap growth run, for the 41-plus-year history of the Russell Indexes, the small-cap value index has managed to maintain a modest lead over large-cap growth: 11.4% vs. 11.1% annualized (1979-March 2020).
  • Growth stocks seem to be holding up relatively well during this period as growth sectors continue to function at or near pre-recession capacities.
  • However, the rest of the economy will eventually start recovering, and history has demonstrated that coming out of such periods, market leadership can and often does change.

The growth-versus-value debate continues, and the growth voices have gotten stronger given the decade-plus run of large-cap growth names. However, we all know that investing decisions should not be based solely on what has been working recently. Investing decisions should be based on multiple considerations, and this blog post looks at three that should probably influence growth and value positioning moving forward:

  • Markets tend to run in cycles.
  • Long-term history suggests that value has a role.
  • Coming out of difficult economic periods, small and value stocks have historically led market recoveries.

Markets tend to run in cycles: Growth stocks have dominated over the past 10 years

U.S. large-cap stocks have been on a historically strong run relative to the rest of the stock market. The style box below shows how much large growth has dominated the other styles over the 10 years ending March 31, 2020.

Large Cap: Russell 200 Growth Index, Russell 200 Index, Russell 200 Value Index, Mid-Cap: Russell Midcap Growth Index, Russell Midcap Index, Russell Midcap Value Index; Small Cap: Russell 2000 Growth Index, Russell 2000 Index, Russell 2000 Value Index

When market leadership lasts this long and the spreads become this wide, it can cause investors to rethink their diversified strategies. Is it time to jump on the large-cap growth story and abandon smaller value stocks? For those that have been investing for a while, this narrative may sound familiar. Below is the same chart for the ten years ending December 31, 1999, maybe the ultimate period for large-cap growth investors. The pattern below looks very similar to the last 10 years.

The '90s were a great 10-year run for all U.S. equity participants, but investors still were questioning whether to abandon diversification and pursue strategies heavily dominated by large-cap growth stocks. For those that stuck

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Russell Investments is a leading global investment solutions firm with $326.9 billion in assets under management (as of 3/31/2021) and $2.8 trillion in assets under advisement (as of 12/31/2020) for clients in 32 countries, The firm provides a wide range of investment capabilities to institutional investors, financial intermediaries, and individual investors around the world. Building on an 85-year legacy of continuous innovation to deliver exceptional value to clients, Russell Investments works every day to improve people’s financial security. Headquartered in Seattle, Washington, Russell Investments has offices in 19 cities around the world, including in New York, London, Tokyo, and Shanghai.  Russell Investments’ ownership is composed of a majority stake held by funds managed by TA Associates with minority stakes held by funds managed by Reverence Capital Partners, Russell Investments' management and Hamilton Lane Incorporated.Frank Russell Company is the owner of the Russell trademarks contained in this material and all trademark rights related to the Russell trademarks, which the members of the Russell Investments group of companies are permitted to use under license from Frank Russell Company. The members of the Russell Investments group of companies are not affiliated in any manner with Frank Russell Company or any entity operating under the “FTSE RUSSELL” brand.

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