Read All About It - Value Outperforms Growth!
Is this the start of a trend? Broadly speaking, Value has been holding its own versus Growth for most of the third quarter this year. There has been no lack of Factor-based investment platforms that have highlighted the extremes in valuations in the market sectors representing the new work from home (“WFH”) economy versus traditional measures of value. And we have laid out that evidence here more than once – and watched the trend continue. But in looking at the monthly, quarterly and year-to-date numbers we can see the start of a trend.
While the year-to-date underperformance of our core Factor-Momentum Equity performance has been over 11% versus the MSCI All Country World Index (“ACWI”) and the quarter-to-date underperformance has was a little over 1% versus the ACWI, for the month of September the outperformance was a hair under 1%. This left our Equity accounts down a bit over 2% for the month of September.
This may be another false start, like those we had seen more than once in the third quarter. But given the extreme valuations of the Large Cap Growth sector – even with all the supposed justifications of the WFH economy – this seems different this time. Indeed, the Nasdaq 100 QQQ Index was one of the worst performers on the month declining about 5.4%. So while we are far from out of the woods on the Covid risks to the country and the economy, many sectors are pricing in worst-case scenarios which should allow for significant upside when things return to some semblance of normal.
The Fixed Income portion of client accounts declined about 0.26%, with intermediate duration High Grade sectors up marginally and credit slightly cheaper. The tactical Fixed Income exposure in the FWDB ETF was down 0.39% thanks to a nominal amount of exposure to short duration High Yield credit.
On an asset management note, we did rebalance portfolios at the end of September. The adjustments were small with some sales US Large Cap Equities to buy International Developed and Emerging Markets Equities, as well as small sales of Equities to buy Fixed Income for balanced accounts. And tax losses were taken wherever possible but that was also limited given the net positive performance of Equity portfolios for the quarter.
Source: Morningstar
