Among the major themes of 2020's volatile markets has been the outperformance of growth over value. Growth broke from value — as measured by their respective Russell 1000 indexes — mid-2017 and investors watched that gap widen over the following three years. Helping growth's case has been index constituents like Apple, Microsoft and Alphabet, with the value index more associated with financials, energy and utilities.
Historically, conventional thinking is that in a downturn or down market, such as what we have experienced so far in 2020, value's less-risky, generally higher dividend paying characteristics, will prevail over growth. This logic persisted in the more significant downturns this century with value losing fractions of growth's decline and, in the case of the GFC, significantly outperforming. However, in the first half of 2020 when U.S. equities lost more than 30% at one point, U.S. large-cap growth mutual funds returned an average 3% above their benchmarks, while their value peers fell behind by an average -0.02%.
Much of the disconnect can be attributed to the collapse in oil prices and falling interest rates, which, respectively, have hit values energy and financial holdings, and the increasingly large dispersion of market caps. Value stocks have been hit by significant declines in top holdings, such as Berkshire Hathaway (21%), J.P. Morgan (-32.7%) and Bank of America (-34.5%). Alphabet, a growth index constituent, moonlighting in the value index, is up 13% this year.
