Value is Back in Favor

Value is Back in Favor

Posted on March 15, 2021
Over the past few months, the Russell 2000 (small cap stocks) have been on a roll.  In the chart to the left, you can see that since November of 2018, small cap stocks have been vastly underperforming their large-cap counterparts.  Additionally, you will notice that the relative strength of small caps began increasing back in November of 2020, and at the same time, the Russell 2000 broke out of overhead resistance and has headed off to the races ever since.  In fact, since the beginning of November 2020, the Russell 2000 is up +52%, while the S&P 500 is up +20%.  That is a significant outperformance for the small cap index, which has not been seen in the past 2 years.

Source: AIQ

US Style Indexes

Canterbury Ranks and Rates securities on a risk-adjusted basis according to our Volatility-Weighted-Relative-Strength (VWRS).  It is a relative strength per unit of volatility metric, allowing the comparison between multiple asset classes and securities.  Below is a table showing the Us style indexes ranked on a risk-adjusted basis.  Notice a theme?
US Style Index Rankings
Risk-Adjusted Rank Style
1 Small Cap Value
2 Mid Cap Value
3 Large Cap Value
4 Small Cap Growth
5 Mid Cap Growth
6 Large Cap Growth
Market Comment
There is certainly a reversal in strength.  Growth stocks, dominated by large cap tech stocks, had previously carried the market.  Now, it is Value stocks flexing their muscles.  We see this reflected across the markets.  Value stocks are leading Growth stocks in almost every segment- large, mid, or small-cap.  An index, like the S&P 500 is dominated by large tech stocks.  The 6 largest stocks in the index (Apple, Microsoft, Amazon, Google, Facebook, Tesla) are all tech related and account for 22% of the market’s movement. 
Unlike the past few years, technology stocks are no longer dominating the markets.  In fact, while the S&P 500 matched a high last week, the Nasdaq (a technology dominated index) did not.  In fact, the Nasdaq is still -8.5% off its previous peak.  The markets are actually being led by energy stocks (that’s a first in a long time).  Additionally, with rising interest rates over the past few months, Financial and specifically banking stocks have done very well.  The large concentration of technology in the S&P 500 has certainly been holding the index back for most of this year.
Now, we do not know how long these characteristics will stay in place, but it is nice to see broader participation in the markets, rather than technology carrying it. The Advance/Decline line hit 4 new highs last week, meaning many stocks are rising, not just a few.  You would not expect to see a bear market with the A/D Line at a new all-time high.
Bottom Line
There has been a significant rotation occurring in the markets over the last few months.  Every liquid traded security is subject to the laws of supply and demand, meaning every security will experience periods of outperformance and underperformance.  While technology-related stocks had led the markets for a majority of recent memory, other sectors are now shining.  Energy, for example had been in the bottom rankings of the US sectors for the past few years.  Today, it sits as the top-rated sector.

Having an Adaptive portfolio, like the Canterbury Portfolio Thermostat, takes advantage of these rotations.  Market indexes, like the S&P 500 are heavily tilted towards tech stocks.  This works well when tech is outperforming, but not as well when it is not.  An adaptive portfolio can rotate away from technology stocks and into less risky sectors.  As market environments shift, the portfolio adjusts both its holdings and allocations to match the new market environment.
Canterbury Investment Management: Tom Hardin

More About Tom Hardin

As Chief Investment Officer, Tom has more than 30 years of experience in the investment management industry and has a broad breadth of knowledge. He is known as an innovator, educator and has been revolutionary in the advancements of portfolio and risk management.

Canterbury Investment Management: Tom Hardin

More About Brandon Bischof

Brandon is directly responsible for managing the Canterbury Analytics Group (CAG). To date, Canterbury Analytics Group has played an important role in advancing portfolio management from a loose art form based on subjectivity and obsolete assumptions to an adaptive process with scientific rules and methods capable of providing evidence based results and statistically relevant value add results.

Every effort was used to provide accurate data and mathematical calculations to provide, what we believe to be, accurate results. Canterbury Investment Management, LLC, and its principal owners, make no guarantee of completeness or accuracy of data or calculations as well as conclusions of any statistical data or information contained in the simulation illustrated on this page. Past results or performance is in no way a guarantee of future results.