Value Stocks Outperform Year-to-Date

Chart of the Week for March 9-15, 2001

With three weeks remaining in the first quarter this year, growth stocks continue to struggle while value stocks steadily gain ground. This has been evident since the second quarter of last year. As the economy slows, investors are showing a renewed appreciation for profitable, cash generating companies, many of which can be found in value indexes.

The dominance is observable across all market segments. While the S&P MidCap Growth is down (5.7)% so far this year, the S&P MidCap Value is up 3.4%. The disparity is even wider in the small-cap category where the value subset of the S&P SmallCap 600 Index is up 6.1% while the growth component is down (5.9)%. A similar gap exists in the large-cap segment.

However, this doesn’t mean that growth stocks should be ignored. A well-diversified portfolio includes stocks from all market caps. Moreover, as is often the case, an index may be down while several stocks in that index have enormous returns. Active management typically outperforms passive strategies during these periods as a manager’s stock picking prowess may add value.

A sound, long-term investment strategy should avoid a concentration of resources in any particular sector or market segment. Broad style exposure within a portfolio is the best firewall against market gyrations.

This illustration was compiled by information from outside sources. These companies are not affiliated with ICMA-RC. This information is being provided for educational purposes and is not intended to be construed as or relied upon as investment advice. ICMA-RC does not offer specific tax or legal advice. Individuals are advised to consider any new investment strategies carefully prior to implementing.

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