Thoughts on U.S. Equities Growth vs. Value September 201
Historical Returns From Growth And Value As of June 30, 201 ANNUALIZED RETURNS FROM RUSSELL GROWTH AND RUSSELL VALUE INDEXES Annualized Returns 1 12 8 Russell 00 Growth Russell 00 Value 2 0 1 3 5 15 20 25 30 35 Years Long-standing academic and empirical support for value Long term returns from value has dominated growth Growth oriented index has delivered stronger returns over the past decade Shorter-term returns heavily influenced by both cyclical and structural factors Past performance is not a reliable indicator of future performance. 2
Historically, Growth/Value Relative Returns Streams Have Been Cyclical And Persisting As of August 31, 201 RUSSELL 00 GROWTH VS. RUSSELL 00 VALUE Rolling 3 year Return Difference 80% 0% Growth Outperformed 0% 20% 0% -20% -0% -0% Value Outperformed -80% Post Financial Crisis of 2007/2008, Growth investing has been in favor as investors have sought secular growth due to slow economic growth Past performance is not a reliable indicator of future performance. 3
Despite Strong Relative Performance, Growth Still Is Relatively Cheap As of August 31, 201 VALUATION PREMIUM: GROWTH VS. VALUE Based on 1 Year Forward P/E Ratio 0% Russell 00 Growth/Value Long Term Median 50% Value Undervalued 0% 30% 20% % Growth Undervalued 0% 2005 200 2007 2008 2009 20 2011 2012 2013 201 2015 201 Past performance is not a reliable indicator of future performance. Price-to-Earning Ratio (12 Months Forward) is a valuation measure calculated by dividing the price of a stock by the analysts forecast for the next 12 months expected earnings. The ratio is a measure of how much investors are willing to pay for the company s future earnings. The higher the P/E, the more investors are paying for a company s earnings growth in the next 12 months.
Growth Value Sector Exposures Differ Greatly Sector weights as of August 31, 201 35 30 SECTOR COMPOSITION OF RUSSELL 00 GROWTH AND RUSSELL 00 VALUE INDEXES 31 Value Growth 29 25 Percent 20 15 5 0 Technology 5 21 Consumer Discretionary 11 17 Health Care 9 Consumer Staples 13 3 1 0 1 Materials Industrials Telecom Utilities Energy Financials Strong Growth Strong Value Numbers may not total due to rounding. 5
In Conclusion: Expect continued leadership reversals from growth and value Resist the temptation to try and time turn Consider balanced exposure to the full range of the US equity market
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