Topical Research – Investment Cycles in Growth & Value Stocks

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SUMMARY

PERFORMANCE TRENDS

Current cycle of growth dominance has experienced substantial mean reversion from a cycle peak in November 2021

Mean reversion of growth vs. value begs the question: was November 2021 the end of the cycle?

Value has outperformed growth since November 2021, but remains far from the mean over the rolling five-year period

U.S. Large Cap Growth vs. Value: Tech Bubble vs. 2021/22

U.S. Small Cap Growth vs. Value: Tech Bubble vs. 2021/22

Growth continues to outperform during risk-on periods

Correlation between value and growth is back near (slightly above) long-term average suggesting the worst of growth’s overvaluation has been wrung out

Growth multiples have risen 7.2x more than value since the GFC while EPS growth rates have only been 1.2x better

Forward-looking valuations have improved dramatically, but earnings estimates will now come into question given potential margin pressure; value still looks relatively cheap

EQUITY

VALUE VS GROWTH

Growth equity prices still not supported by earnings

Market is implying negative perpetual EPS growth for both U.S. and ex- U.S. value stocks

SECTOR TRENDS

Growth has significantly more concentration than value in technology and consumer discretionary sectors, far less financials exposure

In the S&P 500, tech and consumer discretionary squeezed out traditional value sectors like energy & financials

In the S&P 500, tech & consumer discretionary squeezed out value sectors like energy & financials, potential for further mean reversion

LONG-TERM RETURNS

Large cap growth remains the top-performing long-term style box; small cap growth however has not bested small cap value

Value generally outperforms during risk-off periods, similar pattern playing out in 2022

Value dramatically outperformed growth post tech bubble, but has lagged since the Global Financial Crisis

Trailing returns and volatility

DISCLAIMER

Magnus Financial Group LLC (“Magnus”) did not produce and bears no responsibility for any part of this report whatsoever, including but not limited to any microeconomic views, inaccuracies or any errors or omissions. Research and data used in the presentation have come from third-party sources that Magnus has not independently verified presentation and the opinions expressed are not by Magnus or its employees and are current only as of the time made and are subject to change without notice.

This report may include estimates, projections or other forward-looking statements, however, due to numerous factors, actual events may differ substantially from those presented. The graphs and tables making up this report have been based on unaudited, third-party data and performance information provided to us by one or more commercial databases. Except for the historical information contained in this report, certain matters are forward looking statements or projections that are dependent upon risks and uncertainties, including but not limited to factors and considerations such as general market volatility, global economic risk, geopolitical risk, currency risk and other country-specific factors, fiscal and monetary policy, the level of interest rates, security-specific risks, and historical market segment or sector performance relationships as they relate to the business and economic cycle.

Additionally, please be aware that past performance is not a guide to the future performance of any manager or strategy, and that the performance results and historical information provided displayed herein may have been adversely or favorably impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be inferred that these results are indicative of the future performance of any strategy, index, fund, manager or group of managers. Index benchmarks contained in this report are provided so that performance can be compared with the performance of well-known and widely recognized indices. Index results assume the re-investment of all dividends and interest and do not reflect any management fees, transaction costs or expenses.

The information provided is not intended to be, and should not be construed as, investment, legal or tax advice nor should such information contained herein be construed as a recommendation or advice to purchase or sell any security, investment, or portfolio allocation. An investor should consult with their financial advisor to determine the appropriate investment strategies and investment vehicles. Investment decisions should be made based on the investor’s specific financial needs and objectives, goals, time horizon and risk tolerance. This presentation makes no implied or express recommendations concerning the way any client’s accounts should or would be handled, as appropriate investment decisions depend upon the client’s specific investment objectives.

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DEFINITIONS

Asset class performance was measured using the following benchmarks: U.S. Large Cap Stocks: S&P 500 TR Index; U.S. Small & Micro Cap: Russell 2000 TR Index; Intl Dev Large Cap Stocks: MSCI EAFE GR Index; Emerging & Frontier Market Stocks: MSCI Emerging Markets GR Index; U.S. Intermediate-Term Muni Bonds: Bloomberg Barclays 1-10 (1-12 Yr) Muni Bond TR Index; U.S. Intermediate-Term Bonds: Bloomberg Barclays U.S. Aggregate Bond TR Index; U.S. High Yield Bonds: Bloomberg Barclays U.S. Corporate High Yield TR Index; U.S. Bank Loans: S&P/LSTA U.S. Leveraged Loan Index; Intl Developed Bonds: Bloomberg Barclays Global Aggregate ex-U.S. Index; Emerging & Frontier Market Bonds: JPMorgan EMBI Global Diversified TR Index; U.S. REITs: MSCI U.S. REIT GR Index, Ex U.S. Real Estate Securities: S&P Global Ex-U.S. Property TR Index; Commodity Futures: Bloomberg Commodity TR Index; Midstream Energy: Alerian MLP TR Index; Gold: LBMA Gold Price, U.S. 60/40: 60% S&P 500 TR Index; 40% Bloomberg Barclays U.S. Aggregate Bond TR Index; Global 60/40: 60% MSCI ACWI GR Index; 40% Bloomberg Barclays Global Aggregate Bond TR Index.