Growth vs Value – Are fortunes changing?
‘Growth equities’ (or long duration stocks) has been a strongly performing strategy for the past five years, easily outperforming the other dominant fundamental style of ‘value’. Much of this outperformance has been driven by the fact that a declining risk-free rate favours long duration assets over short duration assets. With the risk free rate in most advanced Western economies at historic lows and the global economy now delivering relatively consistent (though modest) growth, this positive driver for long duration assets could now become a negative driver. Anecdotally, in the Australian equities market, we have begun to see many of the go-to growth names of the last few years start to crack in terms of relative performance. In fact, over the past year and excluding Domino’s Pizza (which to date has been highly resilient), the basket of the key small cap growth names has declined by -14% vs the Small Ordinaries which is up +3%. The PE de-rate of this basket has been -24% (from an average median PE of 24.1x as at 30/6/2014 to 19.9x as at 15/6/2015).
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