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.

Ron’s Market Minute – Risk-Off? A Minor Concern

The good news from the media is that (some of) the major stock market indexes* have hit multiple new highs this year. It doesn’t matter whether an index is up one point or 100, if it’s a new high, that’s generally a bullish sign. However, this is not the case with the Russell 2000, an index of small-cap stocks. This index has been pretty positive since the beginning of the year. But have a look at its chart over the past couple of months. Something is giving me a minor concern.

This small-cap index is represented in this graph by the ticker IWM. Unlike some of the major indexes that are hanging around the top of their range, the small-caps have gone nowhere since the second week in February. Actually, the index did sport a high in March but is now back below where it was in Feb, so it’s lost ground. This is an indicator that investors are moving away from smaller stocks toward the larger companies — that they are currently moving away from risk toward a bit more of a risk-off position. 

For those of you who are familiar with a head and shoulders chart, you might also note that the index may be forming a new head and shoulder position- if so, that would be an indication that we may see more potential losses in the small-cap world. 

And one more item of note, the volume of trading in the small-cap world is currently running about a third of what it was a month ago. Both of these factoids indicate that traders might be losing some faith as they move toward more stable large companies. And with the volumes of trading slowing down, perhaps traders are waiting for ……. something

In any case this is not enough evidence to derail my confidence that we’re continuing to move into a strong year in markets. By themselves it’s not enough to derail the current bullish market.  On the other hand, if more weaknesses appear, my concern level will go up. We will be watching.

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk
www.denkinvest.com

LFS-3552305-041621

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Ronald Denk is an Advisory Representative offering services through Denk Strategic Wealth Partners, A Registered Investment Advisor. He is also a Registered Representative, offering investments through Lincoln Financial Securities Corporation, Member FINRA/SIPC.

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*The indices are representative of domestic markets and include the average performance of groups of widely held common stocks. Individuals cannot invest directly in any index and unlike investments, indices do not incur management fees, charges, or expenses, therefore specific index returns will be higher. Past performance is not indicative of future results.

Ron Denk is a Registered Representative, offering investments through Lincoln Financial Securities Corporation, Member FINRA/SIPC.

Mr. Denk is also an Advisory Representative offering services through Denk Strategic Wealth Partners, a Registered Investment Advisor. Denk Strategic Wealth Partners is not affiliated with Lincoln Financial Securities Corporation.

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Past performance is not a guarantee of future returns.