Top

Growth Stocks Are Still Topping Value in 2020. Here’s Why.

Finalytix.caOthers Growth Stocks Are Still Topping Value in 2020. Here’s Why.

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%.

No Comments

Leave a Comment