YTD returns: growth vs. value
Source: Bloomberg Finance, L.P., as of July 21, 2021.
- A little more than halfway through 2021, U.S. equities are turning in another solid performance as large-cap stocks are up 16% year to date while small cap stocks are up nearly 12%.1 Though stocks are on a similarly strong trajectory this year as that of recent years, the makeup of their returns has been very different.
- For much of the past decade, investors could generate strong returns simply by parking their assets in large-cap U.S. growth stocks, which far outpaced other asset classes amid an environment of slow economic growth, low inflation and falling interest rates.
- The macro environment this year has been anything but the same as the U.S. economy looks to record its highest growth in decades, inflation has spiked and there is no longer a clear leader in the growth-value debate.
- The chart compares YTD returns on the S&P 500 Growth Index and the S&P 500 Value Index.2 As it highlights, growth stocks began to recede in Q1 as the low interest rate environment that fueled their performance for much of the last decade looked set for a sustained turn higher. As the 10-year Treasury yield has receded in recent months, however, they have regained their top position this year.
- Investors can’t predict Treasury rates’ movements through the balance of the year nor their impact on investment leadership. Yet it seems reasonable to deduct from the evolving macro environment that the days in which they can rely almost purely on large-cap growth-driven returns have passed. With this in mind, adopting a dynamic, style-agnostic approach may be more important than ever to capture returns in fast-moving markets.
