Focusing On Style

Earlier in this series, small-cap value and growth performances were contrasted using respective Russell indexes. Below is a chart breaking down each of the large-cap style indexes by sectors. The period studied is March 9 through June 1. The listed weightings are from the end of that time frame.

In the large-cap arena, four sectors—financials, energy, health care and utilities—currently comprise more than two-thirds of the value benchmark. While financials are firmly entrenched right now at the top, the growth side’s equivalent giant is technology, at slightly more than 28% of the index. It’s joined by producer durables, health care, consumer discretionary and consumer staples as providing double-digit exposure to the Russell 1000 Growth Index.

Let’s look a little deeper at some of the key drivers of sector performances in this rally for each style.

Russell 1000 Growth Index

• Technology, which leads the second-biggest industry by better than a 2-1 margin, had each of its three main subsectors—telecom, electronics and information tech—produce fairly even returns in the rally. Those ran from around 42% to 45%.

• At No. 2, producer durables is dominated by manufacturers (more than half of the sector’s total) and transporters (another quarter). The former has run up about 44%, and transportation-related constituents increased by some 50%.

• Heath care services was dragged down by its biggest subsectors, pharmas (up 9.7%) and biotech (3.9%). Together, those names held in the Russell 1000 Growth Index generated a combined gain of around 8%. The Russell 2000 Growth’s health care sector has also been bolstered by smaller exposures to medical equipment and services (up 28%) and managed services (up 52%) in the period.

• In consumer discretionary, retail jumped 29%. That subsector comprised almost half of the index’s consumer discretionary category. The other two big pieces, which, combined, almost held the same weighting as retail, were media (up 54%) and leisure (up 42.5%).

Russell 1000 Value Index

• About two-thirds of financial services’ weighting comes from two subsectors – banks and investment banks/brokers. Both made more than 100% gains in the rally. That makes sense considering how beaten down those segments were heading into early March, and explains much of value's recent outperformance compared to growth. Smaller subsectors such as insurance (up 60%) and consumer finance/credit (up 75%) also did well.
  
  Financial services was also a leading sector gainer, barely being nudged out for the top spot by the materials sector.

• The Russell Growth benchmark’s energy category is nearly equally split between equipment/services and nonrenewable energy—basically everything else. However, in the Russell 1000 Value Index, equipment and services are barely represented. That’s good news for value investors. Although energy equipment and service providers have done well, jumping some 81%, others have done even better. Those include offshore oil drillers (154%), gas pipeline services (84%) and oil well services (87%).

• Health care has almost an identical weighting in the large-cap value benchmark as its large-cap growth counterpart. But the former’s returns in health care of late have been far superior. The two indexes are similar in their overwhelming dependence on pharmas and biotechs. The most likely explanation for the difference in performance is that the large-cap value index is skewed more heavily toward pharmas than biotechs. In both style benchmarks, the former is trouncing the latter. As a result, drug makers generated total returns of 20.3% in the Russell 1000 Value index versus 9.7% in the growth benchmark. Meanwhile, biotechs made 9.8% on the value side as compared with 3.9% in the Russell 1000 Growth Index.

1 | 2 |