Tracking A Shift Across The Style Cube

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Includes: EFG, EFV, SPY
by: Brett Steenbarger

The style box looks at returns as a function of two intersecting dimensions: large cap/small cap and growth/value. In my own reviews of market performance, I add a third dimension to create a style cube: international vs. U.S. returns.

A click on the chart above will provide a detailed look at a portion of the cube for 2007. We're looking at EAFE value (BATS:EFV), EAFE growth (BATS:EFG), and U.S. large caps (NYSEARCA:SPY). Recall that EAFE stands for Europe, Australia, Far East. The iShares EAFE style indexes provide a nice look at returns outside the States.

Notice that we see the same dynamic noted in my previous post: value underperforming growth over the 2007 period.

Since the market peak in July, however, we've seen a different shift than the one noted in my prior post. Here are returns from the peak through 9/14/07:

EFV: -6.97%
EFG: -5.34%
SPY: -3.98%

We're seeing international bourses underperforming the U.S. during this period, with value leading the way down. The weak dollar--which really is a strong Euro--may be responsible for some of this weakness, as goods produced abroad are less competitive (more expensive) in the U.S. market. The surging price of oil may also be taking a toll on countries that are heavy importers, especially those--like Japan--with weak currencies.