No Sign, Yet, Of Big Momentum’s Death

Last week we made a case for the secular demise of large-cap growth as a driver of portfolio outperformance. Secular, as you know, refers to a trend that persists over an indefinite, but long, period of time.

All of this prompts the question: What about the more immediate time frame? Are investors actually starting to move away from big momentum stocks?  Evidence from some corners of the brokerage space seem to indicate that growth stocks are being swapped for value issues, but is this really a trend? Just how pervasive is this phenomenon, if it’s a phenomenon at all?

In the interest of efficiency and clarity, we searched the ETF universe for clues. We sought to compare the recent investment activity of growth funds to that of value portfolios. To keep to things simple, we restricted our analysis to funds that actually had the words ‘value’ or ‘growth’ in their names. This paradigm yields 85 portfolios with assets totaling $430 billion, split 59% on the growth side, and 41% on the value side.

Then, we tallied the year-to-date fund flows to gauge recent changes in the level of investor interest. Would we find, we wondered, an outflow of assets from growth ETFs accompanied by an inflow into value ETFs?

In a word, the answer is ‘no.’ That’s, at least, the answer that seems to fit the bottom-line numbers.

What we actually discovered was that BOTH growth ETFs and value ETFs enjoyed net inflows this year, though in differing ways. Specifically, we saw distinctions across capitalization tiers. It turns out that large-cap growth and large-cap value are still attracting investor interest. The ratio of net flows to assets shows growth is still racking up more investment than value, while small-cap value is strengthening at the expense of small-cap growth. Meantime, mid-cap is undergoing wholesale liquidation across both style cross-tabs.

(Click on image to enlarge)

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We found some telling details when we drilled further down into the crosstabs. The large-cap space, for instance, is dominated by three pairs of funds issued by Vanguard and BlackRock. On one side are the Vanguard Growth ETF (NYSE Arca: VUG), the iShares Russell 1000 Growth ETF (NYSE Arca: IWF), and the iShares S&P 500 Growth ETF (NYSE Arca: IVW) which, taken together, account for three-quarters of the assets in the 18-fund universe. When we tally up the year-to-date fund flows for this troika, lo and behold, we find a net disinvestment exceeding $820 million.

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Disclosure: None.

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