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JUST LIKE THAT, growth stocks are back in vogue. Vanguard Growth ETF (symbol: VUG) has outpaced Vanguard Value ETF (VTV) by more than nine percentage points over the past three weeks. That gap in favor of “risk-on,” meaning mainly technology shares, is the biggest since those two exchange-traded funds were created some 19 years ago.
What gives? Weren’t all the strategists proclaiming a new era of value investing? It still seems that way based on what you hear on financial TV and read in investment magazines. My hunch is that the growth comeback, perhaps driven by a 75% rally in Tesla (TSLA) shares from earlier this year, is a short-term trend.
Cast your mind back to the early 2000s bear market. Longtime investors might recall that rocky time. Making the downturn so grueling was not only its duration, but also its depth. The Nasdaq Composite peaked in March 2000, but it took until October 2002 to reach the market low, for a total decline of 78%. During those 31 months, there were several “bear market rallies.” Indeed, short-term snapbacks of 25% or more were common.
This month’s revenge of the tech titans shouldn’t be a big surprise. Many investment managers came into 2023 underweighted in once-sexy stocks like Apple, Amazon and Tesla. According to data from Strategas Research, 62% of active funds beat the S&P 500 in 2022—the highest rate since 2005 and after a dozen straight years of sub-50% readings—and that outperformance was made possible by underweighting big tech stocks.
Could 2023 be the year growth stocks find their footing again—and was 2022 an anomaly? We’ll have to wait to find out. But with the Nasdaq Composite stocks still trading at a pricey 26 times last year’s earnings, value shares appear cheap by contrast. That said, the winning investors so far in 2023 might be those who rebalanced their allocation at the end of last year—automatically trimming what worked (value) and buying what was lousy (growth).
I’ve been putting equal amounts into a low cost growth stock index fund as into total market fund for a while because I feel that too much of the total market was represented by very few tech stocks that rely too much on ad revenue. But now I wonder if the so called growth stock funds have really turned into a large energy company play.
Three weeks? Are you a market timer? I own the whole market and even if I were over-weighted in growth or value I would ignore a three week change as noise.
Mike’s past articles indicate he leans towards technical analysis and, thus, more short term asset allocation changes. I happen to put little weight in that but it appears to work for him.
I’m sure 2022 only serves to confirm value investors’ beliefs.
But the balance must be restored, and growth will claw back its losses.
Rather than worry about the constant battle between growth and value, and whether a small value tilt could juice my returns, I just invest in the total market. It’s easier for me to stay the course in any case.
Do you consider the total market just US or are you thinking the world total market in your decisions? VTWAX is my choice for the world tilt of my equities. I am in the process of consolidating retirement accounts and will be making some changes in my equity allocation and plan to increase my allocation in the world index.
The context of this article is about US Growth versus US Value funds, so my reference to the “total market” refers to owning a Total (US) Stock Market fund.
I see value (pardon the expression) in exposure to ex-US stocks, so VTWAX seems perfectly fine. Certainly the most objective way to own the entire global stock market.
In the end, for my stock exposure I invest in two funds. Total (US) Market and Total International Market. I do this so I can overweight US slightly, at 75/25, rather than the 60/40 VTWAX calls for. To each their own, no one has a crystal ball. Just pick an allocation that’s reasonable and stick to it.