It has been a bit rough at times being a value investor, or at least that's what the return numbers will tell you. Last year, growth trounced value in a big way. The large-cap Russell 1000 Growth Index (up 33.49%) beat the Russell 1000 Value Index (up 19.78%) by a huge 1,371 basis points. Interestingly, the further down the market cap spectrum you go, the narrower the spread was between growth and value.
The small-cap-oriented Russell 2000 Growth Index (up 19.77%) beat the Russell 2000 Value Index (up 10.83) by 894 basis points, which is still a huge spread but considerably narrower than that of large-cap growth and value indices. In microcap land, the Russell Microcap Growth Index (up 14.89%) outdistanced Russell Microcap Value (up 9.62%) by 527 basis points.
Now consider the shellacking the Russell 1000 Growth Index gave the Russell Microcap Value Index -- an astounding 2,387 basis points, or a difference of nearly 24 percentage points -- and it makes this value investor believe that type of performance difference can't continue.
Yet, three weeks into 2020, large growth continues to dominate. Through Tuesday the Russell 1000 Growth Index was up 4.8% while the Russell 1000 Value Index is up just 1%. Likewise, the Russell 2000 Growth Index (up 2.81%) is well ahead of Russell 2000 Value Index (down 0.71%), while the Russell Micro Growth Index (up 2.66%) is outpacing the Russell Micro Value Index (down 0.92%).
Considering that large growth and small growth (again, measured by the Russell 1000 and Russell 2000) have also beaten value in the two- through 10-year periods (annualized), it could lead you to believe that value might just be dead. That would not be the first time that argument has been made, and it's likely not the last.
I am not there yet. Growth has rallied for much of the past 10 years in what primarily has been a huge bull market as investors have rewarded the large, shiny objects, including all the usual suspects -- Amazon.com Inc. (AMZN) , Alphabet Inc. (GOOGL) , Facebook Inc. (FB) , Tesla Inc. (TSLA) and Netflix Inc (NFLX) among them -- while ignoring more value oriented names.
Don't get me wrong, I am not likening the current environment to the technology boom of the 2000 era; there are major differences. Many of the above-mentioned names are raking in huge revenue and, in some cases, profits. In addition, many of them have changed our lives and habits (for better or worse). That was not true during the tech boom, where the rally was not as concentrated and speculation in any name that contained ".com" led investors down a dangerous path of buying anything and everything despite lack of revenue, let alone a positive bottom line.
Still, valuations matter, and value's day is coming; ditto small value, which has historically outperformed large-caps but has been taking a backseat in recent years. At some point there's a mean reversion coming -- I'm just not sure when. As a footnote, unlike small and large caps, microcap value has outperformed microcap growth (annualized) in the four- through 10-year periods.