Scott Burns, business columnist for The Dallas Morning
News since 1985, explains how today's complex economic
issues affect our day-to-day lives in common, everyday
language. Burns explains intricate financial subjects
better than anyone else.
This is a changing market. Not only has
the S&P 500 index been dethroned as the sure route
to high returns and wealth, but value stocks are starting
to beat growth stocks.
you read that right. Value -- the sector of the market
that was beaten and left for dead -- has started to turn
in better numbers than growth.
evidence can be found in the fund group averages tracked
by Lipper Analytical Services. As of last week, value
funds were ahead of growth funds whether you were investing
in funds that specialized in large-, mid- or small-capitalization
stocks. The figures are shown below.
this is a surprise to you, don't feel bad. For nearly
three years, growth stocks have been the only place to
be. They've also been the only thing we've heard about,
whether the media barrage was coming from television,
glossy magazines or newspapers. In 1998, the average large-cap
growth fund, according to the Morningstar database, provided
a return of 33.58 percent, while the average large-cap
value fund returned "only" 13.14 percent. In
1999, the performance gap was even greater, with large
growth funds returning a whopping 39.96 percent, while
value funds returned a dismal 6.77 percent.
you measure the performance gap in dollars, the figures
are stunning. A $10,000 investment in the average large-cap
growth fund at the beginning of 1998 would have grown
to $18,700 by the beginning of this year, while the same
investment in the average large-cap value fund would have
grown to only $12,100. The $6,600 difference -- in only
two years--- is the kind of thing that makes money fly
out of the disappointing funds and rush toward "where
the action is."
wonder that many value funds have less money under management
today than they had two or three years ago. As noted in
previous columns, during much of the last year, value-oriented
funds have been in net redemption, along with bond funds
and balanced funds.
I said net redemption -- more people were taking money
out than were putting money in. Vanguard Windsor II, a
value-oriented fund used in many 401(k) plans, is a prime
example of this capital flight. At the end of 1998, the
fund had $31.5 billion in assets. But a loss of 5.8 percent
in 1999 sent investors running for the exits. Assets under
management plunged to $22.4 billion.
assets under management at Windsor II may have dropped
more dramatically than at most other large-cap value funds,
it remains that most funds in this group saw their assets
peak in 1998.
therein lies an interesting possibility.
analysts and academics can argue about whether large or
small, growth or value, or the best long-term investments,
one of the most powerful forces in the market is the month-to-month
flow of money. Change the direction of the flow, and the
assets getting the new money can rise, or sink, in value
stocks, by definition, are about 85 percent of total market
value in America. Shift a small percentage of the money
in large-cap to small-cap, and price changes can be very
large. A similar, but less dramatic, relationship exists
for growth vs. value. There are, according to a recent
Leuthold Group study, $889 billion in growth fund assets
compared to $649 billion in value fund assets. Again,
any shift from one could have an impact on the other.
is definitely starting to move from large to small, and
it appears to be moving from growth to value.
are fundamental changes that remind me of an old truism.