Performance is in the eye of the beholder. At least, it was in the second quarter, when growth stocks in the S&P 500 index returned just 0.1% in the quarter ended June 30, while growth stocks in the Russell 200 index returned 2.1%. And in the value category, S&P 500 stocks returned 2.6%, while Russell 200 stocks returned 0.3%.
A report by Ronald J. Surz, president and chief executive officer of PPCA Inc., San Clemente, Calif., said the discrepancy can be attributed to different methodologies the index companies use to construct their indexes.
"There are degrees of value and growth, so some growth stocks are more aggressive growth than others and some value stocks are deeper value than others," Mr. Surz wrote in the report. "And some stocks have characteristics that are not clearly value or growth — they're the stuff in the middle."
Russell allocates stocks in the middle on a pro-rata basis into both value and growth, while S&P draws "a hard line" that divides half the market's value between value and growth, Mr. Surz said in the report.
Mr. Surz, on the other hand, carves these stocks out into a separate category he calls core.
"Interestingly, our core sometimes performs better than both value and growth, and sometimes it performs worse," he wrote in the report. "In this second quarter of 2005, large core performed substantially worse than both large value and large growth."