Growth Stocks: Where’s The Beef?

At the risk of making a 34-year-old pop culture reference, growth stock fundamentals remind us of the question first posed by Wendy’s in 1984: “Where’s the beef?”

As was the case back when war was declared on McDonald’s and Burger King, there appears to be a lot of “bun” in growth stocks but not a lot of “meat.”

Face it:  the magnitude and duration of the multiyear clobbering of value strategies by growth stocks in the current cycle is second only to the legendary 1994–2000 “new economy” years. That epic mania for growth as an investing style began about a year before the 1995 Netscape IPO,1 at which point the tech boom began to rage. That rally took the S&P 500 Growth Index 376% higher (30.1% annualized), trouncing the S&P 500 Value Index’s gain of “only” 183% (19.2% per year).2 When the rug was ripped out from under the market in the 2000–2002 crash, value stocks picked up thousands of basis points of outperformance.

Today, the cumulative gap between the two indexes, which has been stretching out since 2006, is once again in triple digits. From July 31, 2006, through November 30, 2018—more than 12 years—the S&P 500 Growth Index returned 246% (or 10.6% annually), more than doubling the 122% appreciation of the S&P 500 Value Index (6.7% annually).

That’s a difference of 124 percentage points.

Before we begin searching for the beef, consider the striking picture that figure 1 paints. As a reminder, the NASDAQ, about as “growthy” an index as can be constructed, started its crash in March 2000, while the S&P 500 topped later that summer. When they did, the rotation to value stocks was a flood.

Figure 1: S&P 500 Growth Total Return Index Relative to S&P 500 Value

S&P 500 Growth Total Return Index Relative to S&P 500 Value


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