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Index IDEA: Growth trumps value during moderate economic expansions

Growth-oriented stocks have significantly outperformed their value-oriented counterparts in the US in 2017, building on a longer term trend. And in 2017 the difference in performance between growth and value indexes was more pronounced as investors moved up the cap tier into the largest US stocks.

Year-to-date as of close of market on Tuesday, August 29, there is an approximately 11% difference between US small cap growth and value stocks, as reflected by the Russell 2000® Growth and Value Indexes, a 13% difference between US large-cap growth and value stocks, as reflected by the Russell 1000® Growth and Value Indexes, and a nearly 15% difference between the largest US growth and value stocks, as reflected by the Russell Top 200® Growth and Value Indexes.

Source: FTSE Russell. Data as of August 29, 2017 and derived from the Russell Index performance calculator. Past performance is no guarantee of future results. Please see the end for important legal disclosures.

Alec Young, Managing Director of Global Markets Research for FTSE Russell, said:

“A number of factors have contributed to the multi-year trend of value stocks underperforming growth stocks, which has continued into this year. First, US GDP growth has been moderate, averaging 2.1% over the past 5 years according to the Bureau of Economic Analysis. Modest growth environments tend to favor growth-oriented stocks as investors are willing to pay a premium for faster growth. Second, the Russell US Style Indexes have been driven heavily by sectors this year, with Technology’s positive returns  boosting the US growth indexes while Energy’s negative returns have weighed down the US value indexes. And, finally, continued political uncertainty in the US and diminishing hopes for major tax reform and infrastructure spending mean investors are unlikely to anticipate a material acceleration in GDP growth anytime soon, suggesting the possibility of a continued growth-led market for the time being.”

For more information on the Russell US Style Indexes, go to the FTSE Russell website.

 

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Views expressed by Alec Young are as of August 30 and subject to change. These views do not necessarily reflect the opinion of FTSE Russell or the LSE Group.

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