Growth stocks have been outperforming their value counterparts and investors can look at Amazon as an example for why this happened. Meanwhile, new research on a smart-beta-growth strategy looks at the theoretical foundations surrounding traditional growth indices.
The Investment Philosophy Popularized by Warren Buffett May Be About to Make a Comeback (CNBC, August 18)
In a note to clients, Strategas Research Partners pointed out that “returns stemming from growth investment strategies have reached a point where they could start to underperform.” This could open the door to value investment strategies. According to the report, “68 percent of active U.S. large cap value managers outperformed their respective benchmark during the first half of 2017, the best among U.S. active managers.”
WSJ: Frustration Deepens for Value Investors as Growth Style Triumphs (Newsmax Finance, August 07)
Although value stocks tend to be less expensive in proportion to their earnings, “the performance of U.S. growth stocks has been almost three times better than that of value stocks in the past 10 years.” Investors are choosing companies with rapid earnings or price growth, “meanwhile, stocks have become expensive in terms of their price-to-earnings ratios as investors pay more money for meager profit growth.”
Amazon’s Strategy Is a Perfect Example for Growth Investors (The Motley Fool, August 20)
“Amazon’s success has come in part from spreading out its bets and investing in so many different emerging markets and technologies,” according to the author of this article. It has embraced failure as part of its strategy and has continued to innovate and push the envelope to compensate for its losses. “Growth investors would be wise to think the same way…you have the risk of losing money in one stock but make it back in another.”
Research Affiliates: A Smart Beta for Sustainable Growth (ETF.com, August 08)
The authors look at traditional growth indices and the theoretical foundations surrounding them. They show “that a smart beta growth strategy – investing in companies with sustainably high earning-per-share (EPS) growth, as identified by high profitability and conservative investment – can diversify value indices, while also delivering a positive excess return.”
All That Glitters Is Not Gold: Growth in The Era of Passive Investing (Seeking Alpha, August 28)
With passive investing growing in popularity, active investors are cutting back on fees to compete. This indirectly cuts back on “resources dedicated to guiding, advising and evaluating corporate leadership,” with “the task of governance oversight [being] outsourced to the market,” according to this author. CEOs with stock-based incentives are relying on revenue growth, however, “history shows that whenever the investment process is simplified to a single metric, that metric could be the subject to manipulation.”
Read more articles by Anna Sachar
