Monday, April 23, 2007
A View From The Style Box: What's Performing Best And What That Tells Us
A while back we looked at the style box and found that value was handily outperforming growth. If we take a fresh look at investment styles and performance, however, a different picture emerges. In this look, we're using the Vanguard ETFs: VUG (large cap growth; dark blue line); VTV (large cap value; pink line); VBK (small cap growth; yellow line); and VBR (small cap value; light blue line).
What we find is that, since the start of 2007, growth has been outperforming value. Indeed, small cap growth is beating the pants off the other investment styles.
Investor preference for small caps is not exactly what I'd expect if the market were expecting recession. Nor would I expect a preference for growth stocks.
But then, again, there are numerous indications that the market is not pointing toward recession:
* Breadth Strength - Remember how beat up the advance-decline stats were during the late February and early March drop? They have recovered that ground and then some, rising steadily to bull market highs.
* Dollar Volume Flows - Twelve of the last fifteen trading sessions have shown above average money flows into Dow stocks. Institutions are putting money to work in the market, not taking funds away.
* All Time Price Highs - It's not just the Dow making all-time highs. The broad NYSE Composite is doing the same. Over 86% of S&P 500 stocks are trading above their 50-day moving averages--and that proportion has been rising. That's not exactly the weakness we'd expect to see in a topping market.
Our look at the investment styles suggests that we have transitioned from a more defensive market (in which value leads growth and large caps lead small caps) to a more speculative one (in which we see the reverse). At this juncture, institutions are committing funds to equities. And that is benefiting the most entrepreneurial segments of the market.