Chart of the week

Growth tops value (again) as rates fall

There’s been no standout growth-value winner in 2021. This week’s chart looks at market leadership and emphasizes why flexibility has been important.

July 23, 2021 | 2 minute read

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.    

  • As of July 21, 2021. Large cap stocks based on the S&P 500 Index; small cap stocks based on the Russell 2000 Index.

  • Bloomberg Finance, L.P., as of July 21, 2021.

The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

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