How Investors Should Interpret Growth and Value Stock Factors in 2019
Feb 18, 2019
All Data and Information as of 02/15/2019 Market Close
- Today we are looking at factor performance of US stocks, specifically growth and value factors in Russell 1000 indices, over a 5-year period and year-to-date (YTD) to understand how these two factors have performed historically relative to general US stocks and if factor investing is worth considering in 2019.
- As can be seen in the chart below, the Russell 1000 Index has generated a cumulative return of nearly 48% over the last 5 years.
Source: Capital IQ
- The Russell 1000 Growth Index has notably outperformed the Russell 1000 Index, generating a cumulative return of 68.47% over the last 5 years and outperforming its benchmark by more than 20%.
- The Russell 1000 Value Index, meanwhile, is lagging the Russell 1000 Index, generating a cumulative return of just 29.21% over the last 5 years and lagging its benchmark by nearly 40%.
- As can be seen clearly in the chart above, these three indices are highly correlated and traded within a tight range of each other from 2014-2016. The dispersion between the returns of these three indices began in January 2017 and continued through 2018.
- On a YTD basis, the Russell 100 Index has generated a cumulative return of 10.10%, as can be seen below.
Source: Capital IQ
- So far in 2019, Russell factor indices are continuing the trend established in the 5-year chart discussed above.
- The Russell 1000 Growth Index has generated a YTD return of 11.31%, outperforming its benchmark by just over 1%.
- The Russell 1000 Value Index, meanwhile, has generated a YTD return of 8.92%, lagging its index by more than 2%.
- While both charts above indicate that growth stocks outperform value stocks, investors should tread carefully if considering an investment in growth stocks. Analysts are beginning to stoke warnings of slowed expected global growth. A slowdown in global growth, especially if coupled with a slowdown in US growth, may cause investors to sell-off growth stocks in favor of companies with stronger balance sheets. Although not definite, slowed global growth could possibly benefit value stocks.