Royal Blue

Both Growth and Value Small-Cap style boxes gained 10% in January’s rally. However, SC Growth remains well in the rearview mirror since its relative strength peak in September 2020: Small Cap Growth +8% versus Small Cap Value +60%.

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In Q3 the High P/E Tier was the best performing subset, up 2.1%. However, the High P/E Tier has lagged the other two segments significantly YTD—up only 3.1% compared to +10.1% and +11.8% for the Mid and Low Tiers, respectively.

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In Q2, the Low P/E Tier was the best performing subset, up 6.6%. The Low P/E Tier also leads YTD +9.6%. The High P/E growth names are lagging severely YTD, up only 1%.

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In Q1 the High P/E Tier was the worst performing subset, down 2.2%. It was the best performer in 2013 (+39.9%), with the Middle P/E Tier (+33.0%) and Low Tier (+33.9%) trailing. 

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The High P/E Tier is now slightly overvalued, the Middle P/E Tier is overvalued, and the Low P/E Tier continues being quite overvalued.

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Growth Stocks Lead YTD In All Three Cap Categories.

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Growth stocks are now all above their historical average valuation levels. Value stocks are all solidly overvalued compared to their recorded averages.

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In Q3 the High P/E Tier was the best performing subset, up 7.6%. It is also the best performer YTD (+23.7%), with the Middle P/E Tier (+22.9%) and Low Tier (+21.7%) just behind.

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All three cap tiers of Growth also now ahead for the YTD. Growth stocks are moving towards their his- torical average valuation levels, with Mid Cap Growth now being overvalued. All Value stock segments continue to be solidly overvalued.

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Growth’s leadership over Value has only been apparent in Large Caps, but this segment had a big short-term reversal in recent months. Large Cap Cyclicals (+7%) significantly lag Large Cap Growth (+17%) YTD.

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Growth’s longer term trend of leadership over Value has only been apparent in Large Caps, but this segment had a big short-term reversal in Q2 and July.

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These once elite companies have continued to turn in good earnings growth. The problem had been that the prices had moved far too high. After a few years of declining prices, the valuations are once again looking very compelling.

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Valuations set the stage for better performance out of growth.  But it is important to note that there’s precedent for the value cycle—seemingly already overextended in time and price—to get much more extended. 

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Value continues to have leadership position over Growth among Large Cap stocks. Mid Caps also shifting to favor Value, but Growth still leading in the Small Cap tier.

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Ten new components inserted into this list of the 99 stocks with the largest institutional ownership. Smallest turnover in four years. Russell also being rebalanced.

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Eleven new components, six of which are first time qualifiers.

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A record 13 new equities achieved Royal Blue status. Today, technology, media and communications make up 40% of the Royal Blues, compared to about 23% five years ago.

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The Royal Blues studies currently identify the 99 U.S. institutional favorites…those equities with the largest dollar value and broadest institutional ownership.

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Big cap growth stocks appear to be in the early stages of regaining leadership from the “tired” cyclicals and “overvalued” value stocks.

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Growth stocks have been out of favor over the past 3-4 year, but look poised to regain leadership over the next 6-12 months.

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