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Page 2 of 2
This Rally Is Different
The following table shows how small-cap value stocks did from March 9 through June 1. The sector weightings are rounded and apply to the last day of the period studied.
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Russell 2000 Value
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Weight (%)
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Gain (%)
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Russell 2000 Growth
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Weight (%)
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Gain (%)
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Financial Services
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34.34
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45.50
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Health Care
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23.58
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28.95
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Consumer Discretionary
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12.86
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94.26
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Technology
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20.76
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53.86
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Producer Durables
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12.26
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61.12
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Consumer Discretionary
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15.94
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65.87
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Technology
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12.35
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69.10
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Producer Durables
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15.61
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55.47
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Materials & Proc.
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8.10
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71.65
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Energy
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6.91
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86.32
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Utilities
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7.98
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20.45
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Financial Services
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6.55
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44.99
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Health Care
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5.14
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36.75
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Materials
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5.16
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72.14
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Consumer Staples
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4.69
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32.89
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Consumer Staples
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2.79
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39.72
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Energy
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2.28
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109.83
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Utilities
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2.70
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52.16
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The top-performing sector in both indexes during the rally has been energy. The difference between which names are considered value and growth, however, is creating quite a gap in returns. Russell separates the styles by price-to-book ratios and growth rates; those with lower values go to the 2000 Value Index, while stocks with higher valuations go to the growth benchmark.
But both feature relatively low turnover rates. That means an overwhelming majority of the names now in each benchmark were there a year ago. When those same stocks were taking a brutal beating last year, the relative outperformance in growth has likewise given greater upside to value names in a rally.
The same outperformance by small-cap value names holds true for health care, technology, consumer discretionary, producer durables and financial services. Ironically, counting energy, those are the six biggest sectors in the growth benchmark and account for almost 90% of its holdings.
In fact, only the three smallest sectors in the Russell 2000 Growth Index are outperforming those same segments in their sister value benchmark.
Unfortunately for small-cap value investors, the edge by financial services hasn't been stable. Last week before the big breakout session on June 1, stocks in that sector of the Russell 2000 Growth Index were slightly ahead.
Conversely, other bedrocks of traditional value indexes have been under-performing their lower-weighted growth cousins. Traditional areas of strength in value investing such as materials and utilities are all doing better on the small-cap growth side in the past three months. (See a more in-depth review in the second part of this series.)
So while value-style stocks are leading growth in small-caps, that cushion isn't coming from traditional bastions of value investing.
Rather, small-cap value benchmarks are showing more resilience these days as a result of holding at least some growth. In other words, diversification is proving quite beneficial during this market cycle as indicated by the Russell small-cap style indexes.
[Coming in Part Two: A closer look at large-cap stock performances in this current rally.]
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