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. Sample Column FOLLOW THE MONEY
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.
Yes, 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. The 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.
If
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.
When 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." Small 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. Yes, 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. While 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. And therein lies an interesting possibility. While 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 very quickly. Large-capitalization 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. Money is definitely starting to move from large to small, and it appears to be moving from growth to value. Both are fundamental changes that remind me of an old truism. "Follow the money." |
|
|||
|
Feature Type: Fact Sheet: Fun Fact: |
|
||
