Page 14 - ISQ UK_October 2017

INVESTMENT STRATEGY QUARTERLY

25
Russell 3000 Value
Growth 20 Russell 3000
Outperforming Russell 3000 Growth
Value 15

Over the past decade, 10
growth has outperformed
value on a relative basis. 5
0
July 3 Mo YTD 1 Yr 3 Yr 5 Yr 10 Yr
Source: Russell, as of 07/30/2018

a large basket of stocks in a portfolio. As a result, more emphasis recessionary environment or paradigm shift to really flip that relative
was placed on finding the sub-section of stocks that represented strength on a longer-term basis. There will be periods when value
exceptional value opportunities, and then holding them until they does better, and there will always be attractive individual value
were no longer a good value (or paying an active manager to find situations on the company level. However, we believe long-term
those opportunities). investors taking a more active approach should still remain
focused on the growth-type companies and sectors that have
Now, online brokers offer extremely low-commission stock trades been in favor in recent years until there are clearer signs that the
and index funds enable investors to own the majority of the world underlying trends have changed.
stock market’s capitalization at little cost. The ability to trade so
quickly and cheaply has helped to cut down on holding times and
has prompted investors to chase quarterly earnings growth and KEY TAKEAWAYS:
whatever is hot at the moment, further skewing the market toward • The broad stock market has performed quite well
growth stocks. Moreover, as investing becomes easier and cheaper, over the last several years, pushing up valuations and
more money flows directly into stocks. Since that money is offering fewer value opportunities overall.
increasingly going toward passive strategies and growth stocks
these days, it has almost become a self-perpetuating cycle. • With interest rates and economic growth as low as
they have been over the last few years, many investors
have been reaching for returns in equity investments
TECHNOLOGY AND DISRUPTION to make up for the lackluster yields in fixed income.
The increasing importance of technology to our overall economy
naturally favors growth strategies over value. Companies that • Moreover, as investing becomes easier and cheaper,
chiefly depend on innovation and continual progress (like those more money flows directly into stocks. Since that
predominantly found in the technology sector) often trade at money is increasingly going toward passive strategies
higher-than-average valuations, but can still be attractive to and growth stocks these days, it has almost become a
investors because they are expected to generate higher-than- self-perpetuating cycle.
average earnings growth in the future, even if they’re not currently • The increasing importance of technology to our overall
profitable. As technology-oriented companies continue to innovate economy naturally favors growth strategies over value.
and disrupt established industries, more and more of the disrupted
companies have turned into value traps that underperform for • The bottom line is that growth stocks have dominated
years. value stocks for over a decade now, and it might
require some sort of a recessionary environment or
paradigm shift to really flip that relative strength on a
THE BOTTOM LINE longer-term basis.
The bottom line is that growth stocks have dominated value stocks
for over a decade now, and it might require some sort of a

All expressions of opinion reflect the judgment of Raymond James & Associates, Inc., and are subject to change. There is no assurance any of the trends mentioned will continue or that any of
the forecasts mentioned will occur. Economic and market conditions are subject to change. The yield curve is a graphic depiction of the relationship between the yield on bonds of the same
credit quality but different maturities. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment.
Investing involves risk and you may incur a profit or loss regardless of strategy selected. The forgoing is not a recommendation to buy or sell any individual security or any combination of
securities.

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