- Data on the rotation between small-cap growth and value stocks goes back decades.
- Looking back over 40 years, small value beat small growth about two-thirds of the time.
- Small-cap growth stocks had a bit of a spike, it's retesting and sort of rebuilding.
By Brandon M. Nelson
True or False: Growth has outperformed value for years and maybe overextended.
That statement is false - if you're talking about small-cap growth, says Calamos Senior Portfolio Manager Brandon M. Nelson of the Calamos Timpani Small Cap Growth Fund (CTSIX). The following chart, he says, may surprise people.
Data on the rotation between small-cap growth and value stocks goes back decades, as shown in this chart from The Leuthold Group. The periods when the line was up and to the right were periods when growth was beating value. Down and to the right was when value largely led.
"As you can see, in looking back over 40 years," says Nelson, "small value beat small growth about two-thirds of the time. Small value largely outperformed in the first 25-30 years while small growth outperformed in more recent years."
The significance of this in late summer 2021, a volatile year for small caps overall? "People seem to think that growth is extended, that growth stocks are way out over their skis. When I look at this chart, I don't see that at all," says Nelson.
"I see something that's bouncing off the bottom," he continues. "Small-cap growth stocks had a bit of a spike, it's retesting and sort of rebuilding. To me, it looks like it's rebuilding to make a move higher, which would suggest growth is ready to win versus value."
Investment professionals, this is just one chart Nelson cites in making the case for allocating funds to small-cap stocks with what he considers "rock-solid fundamentals".
But this is essential to understand how the PM views the prospects for CTSIX: "We don't need growth to win overall for our portfolio to do well. If it does, that would likely be an additional tailwind," he says.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
This article was written by