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In the past few months, we learned that 4th quarter S&P 500 earnings declined 14%, their worst year-over-year decline of the expansion.
With growth harder to come by, investors have been actively bidding up growth names wherever they can find them.
The Russell 1000 Growth Index (IWF) has outperformed the Russell 1000 Value Index (IWD) by over 5% thus far in 2015. We have seen similar outperformance in small cap growth (IWO) over small cap value (IWN).
Looking at the difference in sector weighting between Russell 1000 value and growth indices, we can see that growth has benefited from the outperformance in Tech and Consumer Discretionary with an overweight in those sectors. Growth has also been aided from an underweight in Financials, Energy, and Utilities as those sectors have declined thus far in 2015.
Sector performance in the first quarter has largely followed revenue growth, with Tech, Consumer Discretionary, and Health Care posting above-average revenue growth while Financials, Utilities, and Energy have shown below-average growth.
With the release of 1st quarter earnings in a few weeks, it will be interesting to see if the outperformance of growth over value persists. If growth remains scarce, we could see a continued widening in this relationship. On the other hand, if growth comes in stronger than expected, particularly in the “value” overweight sectors such as Financials and Energy, we will likely see a convergence in performance.
This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.
Charlie Bilello is the Director of Research at Pension Partners, LLC, an investment advisor that manages mutual funds and separate accounts. He is the co-author of two award-winning research papers in 2014 on Intermarket Analysis and investing. Mr. Bilello is responsible for strategy development, investment research and communicating the firm’s investment themes and portfolio positioning to clients. Prior to joining Pension Partners, he was the Managing Member of Momentum Global Advisors, an institutional investment research firm. Previously, Mr. Bilello held positions as an Equity and Hedge Fund Analyst at billion dollar alternative investment firms, giving him unique insights into portfolio construction and asset allocation.
Mr. Bilello holds a J.D. and M.B.A. in Finance and Accounting from Fordham University and a B.A. in Economics from Binghamton University. He is a Chartered Market Technician (CMT) and a Member of the Market Technicians Association. Mr. Bilello also holds the Certified Public Accountant (CPA) certificate.
You can follow Charlie on twitter here.
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