1.1.15: A Look at Equity Style Boxes for 2014

Weekly SP 500 earnings data won’t come out until tomorrow, January 2nd, 2015, from Thomson Reuters and Factset.

Examining the charts this first day of 2015, I happened to look at some of the “growth” and “value” ETF’s.

Morningstar has two ETF’s that divide the large-cap universe:

JKE – iShares Morningstar Large Growth Index ETF

JKF – iShares Morningstar Large Value Index ETF

What surprised me was the annual return difference between the two: Growth was up +13.9% for 2014, while Value was up 7% – 7.5% per Morningstar’s own performance calculator, and that was calculating the return from 12/31/2013 through 12/31/2014.

This probably isn’t a big surprise since readers can probably guess that Apple was Growth’s largest holding at 11%, while Exxon (XOM) was Value’s largest weighting at 7.77%.

Still the performance difference seemed sizable enough to warrant the note.

I guess just looking at 2014’s annual return between the SP 500 – roughly 13.5% – and the Russell 2000 – about 4.8% gets us to the same result, so perhaps this isn’t that revelatory.

Only in the Mid-Cap range did Value outperform Growth: The iShares Russell MidCap Value returned 12.75%, while the iShares MidCap Russell Growth index returned 10.9% (2014 returns were checked against two different sources.) Even though Sempra Energy was the largest name in the Russell MidCap Value ETF its weighting was just 0.87% and the other top 10 names were tech, utilities, and financial-related.

In the smallcap style box, Growth was up about 5%, versus Value’s 2%.

Analysis / commentary: For clients, I have always primarily fished in the large-cap universe, and even today with the SP 500 considered fairly valued at 16(x) – 17(x) forward earnings for an expected 7% – 8% growth rate for 2015, I still think the value in the market remains with the late 1990’s tech leaders, the Nasdaq 100 (Q’s) and the SP 100. That isn’t just the cheapest part of the market, but it is also the part of the market with the best cash-flow valuations and the best return-of-capital (dividends and share repo’s) policies.

The 1990’s bull market was led by Technology and Financials. The 2000 to 2009 leadership was Gold, commodity and Energy based, while the worst sectors last decade were Financials and Technology. The tide is turning back to the old leadership.

It is the old growth leaders of the 1990’s, and some of the new youngbloods that offer the best risk-reward should we see that inevitable 20% correction at some point.

In the period from 1/1/2000 through 12/31/2009, the Growth leaders of the 1990’s became the Value stocks of that decade, and since 1/1/2010.

The Financial’s are my top sector pick for 2015, but there likely be overweights in Technology, Industrials, and Retail (Staples / Discretionary).

Thanks for reading in 2014.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager



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