A Growth Spurt in Growth Stocks
Chart of the Week for November 5-11, 1999
Since 1995, growth stocks have significantly outperformed value stocks. However, this has not always been the case. Just 15 years ago, value was coming off of a strong ten-year period while investors showed little attention to growth securities. When reviewing the past 25 years, the S&P/BARRA Value Index has outperformed the S&P/BARRA Growth Index with lower levels of risk. Which trend will continue?
A popular, and volatile, traditional growth sector is technology. This sector has been the main driver of exceptional returns throughout the 1990s. And certainly technology will be decisive in the 21st century. Of course with growth companies, investors need to determine a premium that they are willing to pay for them. At some point value investors will step into the market and start to accumulate those securities they believe to be trading below intrinsic value.
With the continued success of growth companies, the valuation gap between the two styles have widened dramatically. At some point in time we would expect this gap to narrow. Even though one style can outperform the other in any given period, neither style actually “dies” nor should any investor rely on one to the exclusion of the other.
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