As Bull Market Ages, Should You Rotate From Growth To Value Stocks?

There’s no question about it — growth stocks have been the place to be during this bull market. However, according to LPL analyst Burt White, the growth trade may have finally run its course in 2017.

In a new report, White looked at just how much growth stocks have outperformed value stocks in the past decade. Based on the Russell 3000 style indices, growth stocks have delivered a 50 percent higher overall return for investors than value stocks over the past 10 years.

That divergence has continued in 2017, with growth stocks delivering an 18 percent overall return compared to just a 4 percent return for value stocks.

White said the current bull market is the longest period of growth stock outperformance in history and investors should be looking to dial back exposure at this point. Instead, he believes value stocks could make a comeback in the second half of the year.

While growth stocks almost always trade at a valuation premium to value stocks, White said growth stocks’ 34 percent forward PE premium is currently at its highest point in a decade and is well above its 15-year average of only 27 percent.

“For those still overweight growth, even though growth is currently enjoying strong momentum, we suggest being on the lookout for opportunities to play a value rebound,” he wrote.

White said the financial and energy sectors are the two best sectors for value at the moment, while information technology and consumer discretionary are the two key growth sectors.

Traders looking to play a potential rotation from growth to value should consider buying value ETFs such as the Guggenheim Invest S&P 500 Pure Value ETF RPV and selling growth ETFs such as the iShares Russell 1000 Growth Index (ETF) IWF.

Related Link: Warren Buffett Tells Value Investors To Resist The Temptation To Speculate