Growth vs Value – Are We Setting Up For A Photo Finish?
As of mid-2021, the closely contested performance between growth and value stocks—reflected in nearly equal year-to-date returns of the Russell 3000 Growth and Value Indexes after a significant value lead in May—is influenced by economic recovery prospects, inflation persistence, bond yield movements, and pandemic-related uncertainties, leading portfolio managers to maintain a neutral stance and rely on active stock selection amid evolving monetary and fiscal policies.
A few questions have dominated client conversations in 2021:
- Will inflation prove transitory or persistent?
- How might changes to the tax code impact the markets?
- When will the Fed taper and tighten?
- What investment style wins out this year: growth or value?
The final question is the focus here. As we head into the last five months of 2021, the growth vs. value race is setting up for a photo finish. Through July 30th, the Russell 3000 Growth Index is up 15.4% year-to-date, and the Russell 3000 Value Index is up 16.9%.
What makes the closeness of those return streams even more interesting is that in early May the Value Index was outperforming the Growth Index by nearly 17%. At that time, many on Wall Street thought the global recovery would run hotter for longer and bond yields would continue to move higher—both dynamics that favor economically sensitive value stocks. Then, as we moved further through Q2, growth stocks came roaring back as bonds caught a bid and investors grew concerned about the durability of the expansion, with the Delta variant of Covid-19 only adding to those worries as of late.
We continue to maintain a neutral position between growth and value in our discretionary portfolios, leaning on the portfolio managers of the actively managed strategies we use to navigate that style dynamic and find the most compelling opportunities at the stock level. Ultimately, those factors that have and will continue to influence the trajectory of growth and value stocks—the pace and durability of the economic recovery, the persistency of the inflationary spike, the direction of bond yields—will also heavily influence the direction of monetary and fiscal policy into year-end.