Domestic Markets – 4Q19 Review
The surge in U.S. equities (defined as the S&P 500 Index) that has been in place throughout 2019 continued in the fourth quarter, with the S&P 500 Index ending the year just shy of an all-time high. The S&P returned 9.1% in the fourth quarter, and 31.5% for the year. After trailing their larger-cap counterparts over the course of the year, the small-cap Russell 2000 Index posted a fourth-quarter gain of 9.9% and a calendar-year return of 25.5%. As an asset class, small-cap stocks still have some runway before eclipsing their August 2018 high watermark.
On a style basis, growth once again outperformed value in the quarter. This style trend has been in place for much of the past decade, undoubtedly aided by the low rate environment that has persisted over this timeframe. Low rates decrease the discount rate applied to future cash flows – thereby increasing their present value. As growth stocks often tend to have more of their cash flows in future years, the low discount rate has a more positive impact on the present value of growth stocks (vs. value).
Style-driven environments of this nature tend to self-cancel over time – this is evidenced when reviewing the value/growth relationship over past decades:
|Russell 1000 Value||205.1%||27.7%||325.0%||422.2%|
|Russell 1000 Growth||312.3%||-33.4%||535.7%||318.1%|
|Russell 2000 Value||173.0%||121.4%||223.3%||399.3%|
|Russell 2000 Growth||239.7%||-12.9%||255.1%||197.0%|
As the above tables illustrate, the style debate should not be an either/or discussion – clients should have exposure to both value and growth managers.
Certain information contained in this communication constitutes “forward-looking statements”, which are based on Cambiar’s beliefs, as well as certain assumptions concerning future events, using information currently available to Cambiar. Due to market risk and uncertainties, actual events, results or performance may differ materially from that reflected or contemplated in such forward-looking statements. The information provided is not intended to be, and should not be construed as, investment, legal or tax advice. Nothing contained herein should be construed as a recommendation or endorsement to buy or sell any security, investment or portfolio allocation. Securities highlighted or discussed have been selected to illustrate Cambiar’s investment approach and/or market outlook. The portfolios are actively managed and securities discussed may or may not be held in client portfolios at any given time, do not represent all of the securities purchased, sold, or recommended by Cambiar, and the reader should not assume that investments in the securities identified and discussed were or will be profitable.
Any characteristics included are for illustrative purposes and accordingly, no assumptions or comparisons should be made based upon these ratios. Statistics/charts are based upon third-party sources that are deemed reliable; however, Cambiar does not guarantee its accuracy or completeness. As with any investments, there are risks to be considered. Past performance is no indication of future results. All material is provided for informational purposes only and there is no guarantee that any opinions expressed herein will be valid beyond the date of this communication.