Style-Box Update: Growth Still Leading Value Across Market Caps; Zeroing In On Mid-Caps

Growth investing continues to outperform value year-to-date, though by a narrower margin than in prior years. While the Russell 2000's recent relative performance has deteriorated, the S&P 400 Mid-Cap has historically outperformed the S&P 500 by 142 basis points annually over the past 25.5 years. Despite these trends, 10-year returns for both MidCap and Russell 2000 style boxes remain below 10%.

Analysis

An analysis of year-to-date returns indicates that the growth style of investing continues to outperform value, although the margin of this outperformance has diminished relative to prior years. Within the market capitalization spectrum, there is a notable divergence in performance. The Russell 2000 small-cap index is showing signs of weakness, with its relative performance versus the S&P 500 deteriorating, particularly in the most recent time frames. In contrast, the S&P 400 Mid-Cap (MDY) demonstrates significant long-term strength, having outperformed the S&P 500 by an average of 142 basis points annually over the 25.5 years since January 2000. However, it is important to note that the 10-year annualized returns for both mid-cap and small-cap style boxes are currently below 10%, suggesting a more challenging recent environment for these segments compared to their large-cap counterparts.

Key Decisions for Investors

• Given the deteriorating relative performance of the Russell 2000, investors should exercise caution with small-cap allocations and monitor for a trend reversal before committing new capital.
• The historical long-term outperformance of the S&P 400 Mid-Cap suggests that investors seeking alpha outside of large-caps could consider overweighting mid-caps relative to small-caps.
• The narrowing leadership of growth over value investing warrants close monitoring, as a continuation of this trend could signal a broader market rotation, justifying a more balanced style allocation in portfolios.