The S&P 500 entered “official” bear market territory in June, finishing the month down -8.3%, and bringing its total return for the first six months of 2022 to a dismal -20.0%. Unsurprisingly, every factor index also ended the month and year-to-date periods in the red. What may be somewhat surprising is that, for the first six months of the year, most factors outperformed the S&P 500. In part this comes from the relatively good performance of the smaller stocks in the index and the small-cap tilt of most factors. But a major part of the story is the extraordinarily poor performance of Growth
after a decade of dominance over Value.
Our first chart shows the relative performance of Value versus Growth over trailing six-month intervals. Value’s
current raw outperformance places it in the 97th percentile of all six-month intervals; its only comparable advantage
occurred during the deflation of the technology bubble nearly 20 years ago.
Any difference in returns, such as that of the Value-Growth differential, is importantly influenced by the ambient level of
dispersion, which is a measure of the opportunity to add value (whether by stock selection, factor rotation, or other
means). The higher the level of dispersion, the greater we would expect the difference between any two factors to be –
so we also graph the Value-Growth differential in dispersion units. This adjustment shows that Value’s performance is
even more remarkable, lying at the 99th percentile of historical experience.
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