The Anti-Growth Market

Chart of the Week for April 13-19, 2001

Value stocks, regardless of capitalization size, outperformed growth stocks during the first three months of the year. This marks the third consecutive quarter that large value stocks have led large growth stocks.

Value’s relative dominance over growth securities may be attributed to the following: The shock waves from the tech sector’s precipitous rise and subsequent plumment are still being felt. Investors are flocking to securities that are the opposite of growth: stocks of high quality companies with established earnings. Additionally, a slowing economy means slowing corporate revenues and therefore, slowing corporate earnings. Industries resistant to recessionary climates are attracting investors. These industries typically fall in the value universe. Not long ago, growth, at any price, received investors’ dollar votes, especially if the securities’ name included dot com. Now, valuation has become a much more important part of investors decision making. Companies with a viable business model and a profitable track record are popular.

The growth versus value battle continues to rage; over the short-term, one will always provide better relative returns. Rational, long-term investors know that a well rounded portfolio should include both.

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