Broadly Diversified Portfolios Tolerate Style Shifts Better

Chart of the Week for September 8-14, 2000

Often, turning points are identifiable only in retrospect. Such is the investment style turning point that occurred on March 14.

Both Growth and Value had negative returns during the first 10 weeks of 2000, but Value was the more difficult segment of the market. Not only was return more negative for Value, but the volatility of returns for the S&P/BARRA Value Index was higher than that of the S&P/BARRA Growth Index.

On March 14, the relationship changed, and we’ve reset the return line graph at right to illustrate. From March 14 on, the Value Index has produced a positive return, while the Growth Index has danced on both sides of a 0% return. What’s more, the Value Index has been more sure-footed, while the volatility of the Growth Index has increased. Why? Investors are showing a renewed appreciation for profitable, stable, cash-generating businesses, many of whom can be found in the Value Index. On a year-to-date basis, the Value Index is up 4%, compared to the Growth Index return of 1% (through September 7).

We bring this to your attention to illustrate the necessity of broad style exposure within a portfolio. It can’t be said enough: past performance provides no guarantee— and frequently little insight— into future results.

This illustration was compiled by information from outside sources. These companies are not affiliated with ICMA-RC. This information is being provided for educational purposes and is not intended to be construed as or relied upon as investment advice. ICMA-RC does not offer specific tax or legal advice. Individuals are advised to consider any new investment strategies carefully prior to implementing.

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The performance data quoted represents past performance. Past performance is no guarantee of future results. Investment returns and principal value 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 illustrated. For performance data current to the most recent month end, contact ICMA-RC Services, LLC by calling 800-669-7400 or by writing to 777 North Capitol Street, NE, Washington, DC 20002-4240. Para asistencia en Español llame al 800-669-8216. Performance data current to the most recent quarter end is available by visiting www.icmarc.org.