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Weekly eLetter 4/16/2021 -– The Multi-Thousand Dollar Difference

We often talk about ‘growth’ investments vs. ‘value’ investments. Growth investments tend to be more oriented toward newer technology — which includes computers, networks, software, chips, and so on. Value investments often lean toward older technology which includes more traditional industries and a focus on industrials. So what’s the big deal anyway, and why should you care?

Last year makes a really good case for knowing which area is stronger. Have a look at this chart of the 2020 year’s returns with growth investments in red and value investments in green.

Anyone who held only growthy stuff may have had returns for the year like this growth exchange-traded fund (illustrated in red). For the year, it was up 37%. Quite the year!  ON the other hand, anyone who held only value plays may have had returns for the year like this value-oriented investment (in green). It closed the year 2020 up 2%! Not quite as exciting. We were fortunate enough to note from early on during 2020 that growth investments were performing better than value, and so we slanted client portfolios toward growth and away from value. It worked out really well; generating a lot of client thank-you notes. It made a huge difference getting the orientation right- growth over value.

But now here we are in 2021 and the charts and market charts are looking quite different.  Here’s what this year looks like in a chart- so far.  That’s still growth in red, and value is shown in green.

Have a closer look. You’ll note that up through mid -February neither had a big advantage over the other.  However, by mid -February Value was starting to take over the reins. So, like many technically-driven portfolio managers we began a shift toward value. And you’ll note that it appeared to be working- that a shift toward value (green) was beneficial to investors.  But Ms. Market rarely makes it as easy as it was last year to discern where the investments needed to be focused. So now have a look at the last small section from about April 1st through yesterday. It appears to me that growth (red) is once again showing strength vs. value.  It’s only been a couple of weeks, but there’s a high probability that managers who pay attention to the strength in different segments of markets will again be shifting toward growth. Yes, it’s sometimes hard to determine, and yes Ms. Market can be schizophrenic, but then growth vs. value is, for many of us, the multi-thousand-dollar question.  It’s not an easy task, but it can make such a meaningful difference.

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