Growth Stocks Are Still Topping Value in 2020. Here’s Why.
By Andrew Bary/Barron’s, 30 Jan 2020
Growth strategies are outperforming value strategies so far this year. It has been the same story so far in 2020 as in 2019, as value-oriented stocks—large and small—are lagging behind their growth counterparts. The gap so far this year is significant, at almost 5 percentage points.
The iShares Russell 1000 Growth exchange-traded fund (ticker: IWF) gained 52 cents to $182.87 Wednesday and is up 4.0% so far in 2020, while the iShares Russell 1000 Value ETF (IWD) was off 53 cents to $135.39 Wednesday and is down 0.8% in 2020. During 2019, the iShares Russell 1000 Growth ETF returned nearly 36%, topping its value counterpart by nearly 10 percentage points. For comparison, the Russell 1000 index tracks the largest stocks in the U.S. market and is up 1.6% this year.
Among small stocks, the iShares Russell 2000 Growth ETF (IWO) has risen 1.2% so far in 2020 while the iShares Russell 2000 Value ETF (IWN) has lost 3.4%. The Russell 2000 index is down 1.2% this year. Growth stocks are beating value stocks as investors gravitate toward marquee growth issues that are posting impressive earnings gains in a slow-growth economy, such as Apple (AAPL), Microsoft (MSFT), Visa (V), and Mastercard (MA).
Energy stocks, which are disproportionately in value indexes, are having a tough 2020 due to weak oil and natural gas prices. Shares of Exxon Mobil (XOM), the top U.S. energy company, hit a new 52-week low Wednesday. Other leading value stocks like Berkshire Hathaway (BRKA), AT&T (T), and Verizon Communications (VZ) are in the red this year.
Momentum-oriented strategies also are off to a strong start in 2020, after trailing the benchmark S&P 500 during 2019. A momentum approach means holding stocks with a recent history of strong price performance.
The iShares Edge MSCI USA Momentum ETF (MTUM) is up 4.8% so far this, topping the S&P 500’s 1.5% gain. Its largest holdings are Visa, Microsoft, and Mastercard. The momentum ETF trailed the S&P 500 by about 4 percentage points last year. A more extreme approach of buying the 20% of stocks in the Russell 1000 index with the highest valuation and shorting the 20% with the lowest valuation has returned 8.7%. Shorting a stock means betting its price will fall, by selling borrowed shares. A similar approach involving the momentum factor—buying the stocks with the strongest momentum and shorting those with the weakest—has gained 8.6% in 2020.
Both momentum and growth strategies underperformed in September after a strong run earlier in 2019, but both again have asserted themselves lately. The growth/value disparity also is evident among mutual funds. The Vanguard Windsor II (VWNFX), a classic value fund, was up just 0.3% through Tuesday, while the Fidelity Growth Company fund (FDGRX) has risen 4.7%.