Growth vs value is a well-documented discussion in stock investing. It describes two fundamental approaches or styles to investing where in a basic sense, the growth approach seeks to invest in companies that exhibit strong growth characteristics (whether this be in the sales, earnings and/or cash flow of a company),... Show More
Over the past quarter, much of the small-cap index outperformance over large caps has been due to the excellent returns of small resource companies. Given their cyclical nature, is that a reason to look elsewhere? The following note makes it clear that we think not. Show More
Rudi, thanks for your note. I’ll have to respectfully disagree with you here on several fronts. Firstly, I think it’s incorrect to say that the charts are ‘full of noise’ as they are constructed by a reputable and well credentialed provider of indices globally (MSCI). Secondly, while you are correct that there are small cap resources and mining services companies in the Growth index, they also exist in the Value index. I cannot explicitly talk to the composition of those indices as I don’t have access, but to give you an idea, I do have access to the S&P/ASX Small Ordinaries universe and the ‘Resources’ component of that index is currently around ~23% of the index. In fact, when you add other ‘domestic cyclical’ sectors such as media and retail to the mix, cyclical companies make up ~60% of the index! That is, the small cap universe is heavily populated by cyclical companies. As an Australian small cap manager, I believe your suggestion to exclude those stocks to get a more accurate picture is incorrect. As I mention in the piece there are several drivers of growth (organic, acquisitive, and cyclical), all legitimate – we just have to be acutely aware what type of growth we’re dealing with and value these companies appropriately. As you invest in ‘non-cyclical growth’ companies only, of course your returns look different to these charts. Hope the above details clarify a few things for you.