Here we go again. Growth is again outperforming value year to date by a wide margin. Within large-caps, the Russell 1000 Growth Index (+15.15%) is beating the Russell 1000 Value Index (+11.46%) by a fairly resounding 369 basis points. The dispersion is even wider in the small-cap space, with the Russell 2000 Growth Index (+16.11%) beating R2000 Value (+11.09%) by 502 bps. Within my favorite index, the Russell Micro-cap, Growth (+15.86%) is trouncing Value (+10.16%) by 570 bps.
This may help reignite the argument that value is dead, and the data can be used as a weapon in this case. Within both large-caps (R1000) and small-caps (R2000), the growth components beat value cumulatively for each of the past 10 years. For instance, over the past 10 years, R1000 Growth has averaged 16.95% per year versus 13.93% for Value. Within the R2000, the dispersion is a bit narrower over that same period, with Growth (+15.84%) beating Value (+13.43%).
Within micro-caps, however, the history is very different. Value has actually done better than growth over the 3, 4, 5, 6, 7, and 8-year cumulative periods. Over 10 years, results are extremely close, with RMicro Growth (+14.28) barely outpacing RMicro Value (+14.2%). This is a fascinating area of the market, one that is under-followed, and where inefficiencies still exist -- that is, if you have the stomach for the volatility.
We've experienced several times over the past 20 years or so that value has been declared dead, perhaps most famously during the tech bubble of the late 1990s/early 2000s. The old valuation metrics, we were told, no longer mattered. It was a new era in which the lessons that Benjamin Graham taught us were archaic and irrelevant. We all know how that turned out.
Value Is Just Hibernating
Let's face it, value is not sexy, never has been and probably never will be. Overall, the success of FANG stocks has put "growthier" names in the spotlight -- and there, at times, valuations have mattered little.
I don't believe that the current environment is anywhere close to the tech bubble. FANG stock valuations have come down and these companies are generating growing bottom lines. It may not be enough to attract me, but you never know. If something is cheap enough, especially when markets exert punishment that does not fit the crime, I may take a stab.
Value is not dead, it's just hibernating, especially in certain areas of the market.