Diary of a Financier

Growth underperforming value & no reversal in sight

In Capital Markets on Wed 24 Apr 2013 at 11:05

Due to our buying spree throughout the past week’s pullback, I spent some time looking at inter & intra-asset class relationships, and I noticed the major underperformance of the equity growth style. I wanted to discuss that and its meaning herein.

A lot of our equity accumulation has been in passive ETFs, so I’ve had to really study relative value and performance in order to wring as much alpha out of these positions as possible. In my comparison of equity styles (growth/value/core) and capitalizations (large/mid/small/all), I couldn’t help but notice the prolonged underperformance of growth relative to value. In particular, this overlay of Large Cap Growth (IWF) vs All Cap Value (IWW) emphasizes the point, as you can see the ratio’s deterioration since May 2010:

IWF v IWW daily (LCG v ACV)

IWF v IWW daily (LCG v ACV)

Having notice [what looks like] a rounded bottom in the ratio, I thought a purchase of IWF might be timely for outperformance. But, I zoomed out to see the overlay’s weekly fractal, and I noticed that growth’s underperformance can last a lot longer than this. Take, for instance, September 2003-August 2006:

IWF v IWW weekly (LCG v ACV)

IWF v IWW weekly (LCG v ACV)

That’s a satisfying comparison too, because the growth/value ratio’s performance syncs well with the SPX 2006 analogue I’ve been tracking since the beginning of this year. So, not only do SPY’s priceaction and indicators align with 2006’s, but also the intra-asset relationships.

In that vein, I’m staying the course with my Russell 2000 Small Cap (IWM) position, for which the thesis hasn’t been disproved, although IWM’s underperformed SPY so far. I was able to average down on Monday, bringing the position up to a 6% allocation.


  1. […] multistrategy assessment; things like credit spreads, inflation expectations, sentiment/psychology, growth vs value, and long term technicals are all consistant with the 2006 analogue, so I’ll have to find […]

  2. If the 2007 SPX analogue prevails (meaning we’re further along in the cyclical bull market than previously considered), then the LT IWF/IWW chart is clear: own growth over value & large cap over small cap for significant outperformance; top performer should be mid cap growth (IWP).

    2007 SPX analogue: https://thebuttonwoodtree.wordpress.com/2013/05/09/null-hypothesis-testing-spy-2007-analogue-rather-than-2006/

  3. […] think a mea culpa is in order, as I’ll retract the entire analysis regarding “Growth underperforming value & no reversal in sight” […]


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