By any standards, we are in a difficult market environment. Multiple factors are fueling what has been extreme volatility. As of Thursday, June 16, the “market1” is down -22.50%. Why then, are portfolio results of similar risk categories so wildly disparate? A moderate model for instance, with a 60/40 blend of equities and bonds, should yield similar results across portfolios, right? Let’s examine.
“The market” is generally referring to the S&P 500 Index, a capitalization-weighted index made up of some of the largest stocks in the US, with a blend of both growth and value companies. However, recently, the return differential between growth and value stocks is tremendous. While the S&P 500 Total Return Index is down -22.50%, S&P 500 Growth Index is down -30.28% and S&P 500 Value Index is down -13.82% as of June 16, 2022. That’s about a 16% spread between large cap growth and large cap value returns. The numbers are similar for mid cap and small cap stocks, with growth being down about 15% - 16% more than value in both cases.2 An overweight to growth would have had a much more negative effect on portfolios than an overweight to value. In prior years, however, the reverse would have been true.
Tilts can be impactful, and the bigger the tilt the bigger the impact this year. Guessing where to invest is often ineffective and by the time it’s obvious it is usually too late. Even harder is knowing when to make a shift. Below is a periodic table of investment returns from 2001 year to date through April 30, 2022 that illustrates this reality. While no one equity style or asset class permanently outperforms or underperforms, it is clear that leadership exists within various time frames that can often be attributed to the prevailing macroenvironment.
Where advisors wish to simplify the process and remove the guesswork, EQIS offers core equity managers in large, mid and small cap disciplines that actively manage portfolios of both growth and value stocks. Following are examples of core equity managers that you can utilize on the EQIS platform:
If you would like to deploy these strategies, go to the respective client contact and from the Action drop-down menu in the upper right corner, select Change Asset Allocation.
This option is only available for clients who have provided you with trading authorization. If you do not have trading authorization, you can either submit a Limited Power of Attorney signed by the client or use the Client Directed Asset Allocation Form found on the Resources Tab and have the client sign it.
Your EQIS Business Consultant is available to help you implement these changes, or contact Advisor Services at support@EQIS.com or 800-949-9936 and press 2.
1 S&P 500 Total Return Index
2 Source: Morningstar
Indexes are unmanaged portfolios representing different asset classes, with varying levels of associated risk. Direct investment in an index is not possible. A portfolio can suffer losses as well as achieve gains, and past performance is no guarantee of future results. Diversification does not ensure profit nor prevent loss. While EQIS believes the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.
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