Market review 23.09.10
Value vs. growth on different timeframes
I've maintained that we're in a dynamic regime, and playing swings between value and growth can generate alpha.
I’ll discuss the short-term and long-term possibilities in these two major equity buckets, but first:
An important distinction
I use the words ‘growth’ and ‘value’ a ton, but they can be ambiguous for readers.
A very simplified definition: Stocks are classified as growth if they have a high earnings growth rate or value if they have a low P/E ratio.
However, BlackRock uses current growth rates and valuations (which fluctuate with the business cycle and market regime), while Vanguard uses a more static classification. The resulting differences in asset allocation between these two ETF giants can be significant like it is right now:
Example: In Blackrock’s Growth ETF, the energy allocation went from 1.6% to 8.2% at the end of last year, while it was unchanged in Vanguard’s Growth ETF.
I like the Vanguard approach. To me, “growth” is tech and consumer discretionary. “Value” is energy, financials, and industrials.
Why? Because this ties in with the Intermarket better. When inflation is high, energy outperforms. When rates are falling, tech outperforms. I like to time these sector rotations with technical analysis, not based on accounting metrics, which are lagging and full of assumptions.
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