The (Not So) Black-And-White Choice Between Growth And Value

Much has been written about the perpetual shift in sentiment between growth and value. Market timers are always trying to figure out when investors are becoming more bullish on growth stocks and bearish on value, or vice versa, and the resulting actions can go a long way in determining which sectors and industries outperform.

A Trader’s Point Of View

Nowhere is this more apparent than in the tech sector. Tech is traditionally classified as a growth sector, but even within that, there are high-growth areas that correlate to a more “risk-on” environment. Take a look at the course plotted by Direxion’s spate of tech-focused leveraged ETFs compared to that of the ETF issuer’s broad market Daily S&P 500® Bull 3X Shares SPXL, below in yellow.

Chart: Yahoo Finance; Data as of March April 1, 2019. Past performance is not indicative of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost.  Current performance may be lower or higher than the performance data quoted. For standardized performance, click here.

While SPXL was up nearly 50 percent in the first quarter of 2019, all three Direxion tech-focused ETFs, Direxion Daily Technology Bull 3X Shares TECL, Daily Semiconductor Bull 3X Shares SOXL and Daily Robotics, Artificial Intelligence & Automation Index Bull 3X Shares UBOT, outperformed by more than 20 percentage points. For context, that’s the best first-quarter performance for those ETFs (excluding UBOT, which is less than a year old) in more than five years.

This outperformance tells us that investors had a very strong appetite for high-growth tech names in the first quarter.

As for value, Direxion Daily Utilities Bull 3X Shares UTSL, Direxion Daily Financial Bull 3X Shares FAS and Direxion Daily Consumer Staples Bull 3X Shares NEED all are trading below the SPXL. So, the trend has clearly favored growth.

Growth vs. Value For Intermediate-Term Investors

Put another way, look at the performance of the Direxion Russell 1000® Growth Over Value ETF RWGV or Value Over Growth RWVG ETFs, which combine both long and short components to deliver returns on correlated asset types.

The value over growth pair, which is up 6 percent year-to-date, is ripe for investors who might anticipate a narrowing between the high-flying sectors like tech and biotech and the value sectors like consumer staples and utilities.

In the case of growth over value, which is up 14 percent YTD, investors likely hold the thesis the market will continue to favor aggressive growth stocks, even if the weak Lyft IPO may have dampened unicorn spirits a bit.

Chart: Yahoo Finance; Data as of March April 1, 2019. Past performance is not indicative of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost.  Current performance may be lower or higher than the performance data quoted. For standardized performance, click here.

The market has clearly shown a desire to go overweight growth and underweight value in 2019. Of course, it’s not a question of if this trend will change, but when. Most investors will not be able to time a true shift in sentiment between growth and value—it’s immensely difficult and requires some luck. But trading isn’t always about being first—it’s about adapting to changes when they are clear to see. The best thing to say about the growth-value relationship is it won’t be going away anytime soon.

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