(When it comes to public companies, the past decade has seen the big get bigger and the small get smaller. Large technology and consumer giants have seen stellar outperformance over recent years while smaller sectors like energy and materials/industrials have generally gone nowhere but lower. Most of the top-ten companies in the Mega Cap Growth ETF (NYSEARCA:MGK) have market capitalizations at or above $1T and many investors seem to believe they will continue to grow revenue over the next few years, hence many have record-high valuations.
Mega-cap growth's outperformance has been particularly strong in recent years. Comparing MGK's total returns to the small-cap growth ETF (VBK), the small-cap Value ETF (VBR), and the mega-cap Value ETF (MGV) we can see that MGK has gained from both the outperformance of Mega-cap and growth companies:
Indeed, "Growth over Value" and "Large over Small" have been two separate sources of alpha in recent years. MGK has benefited from the combination of the two. This alpha can be visualized by considering the total return ratios of the Mega-cap growth over the Mega-cap value ETFs ("Growth over Value") and the Mega-cap growth over small-cap growth ETF ("Large over Small"):
Truly, this year has seen the most extreme outperformance of these two factors. As you can see in the first chart, growth stocks had very steady outperformance over Value at the onset of the year. However, the outperformance pattern has waned over the past two months which may imply growth is no longer the alpha generator it was.
In the latter chart, we can see that the mega-cap company outperformed by the most significant degree during the first few months of 2020 during the period of extreme volatility. Since Spring, mega-cap companies have no longer generated material outperformance and there seems to be a classic "double-top" pattern which suggests
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