Though Dividend Yield (and the US) are the exceptions, the 3 Month Style Map indicates that Value has been in the doldrums, and Growth, especially forward looking, in the ascendancy.  But this is not the full picture, as the 1 Month Style Map reveals.  Over April, there has been a sharp turnaround in the behaviour of Value, most markedly in the Eurozone.  This could, of course, be a temporary blip, but the reversal appears across all Value factors even with sector adjustment, and  may reflect improving sentiment on future corporate earnings.  The Far East and Emerging markets offer up a different picture.  Forward Growth and Momentum were in vogue over 1 and 3 month horizons and Value was out of favour.

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The 3 Month Style Map confirms what has now become a distinct pattern. In all but the United States, Growth is outperforming Value. Clearly, this suggests that investors are not anticipating any near term rebound in corporate earnings. That would have reinforced the tentative Value uptick that we saw a few months ago. Rather, Value weakness forecasts a period of slow economic activity ahead.

Nonetheless, the details of the Growth gains provide some modest reassurances. Unlike the earlier period of the current recession when only past and current Growth factors did well (and forecast Growth struggled) now it is the forecast Growth characteristics that are doing best.  Even though investors are doubtful on the economy, they anticipate sufficient stability to have some confidence in the ability of positive forecasts to be achieved.

While the 3 Month Style Map still shows Value outperformance, the shorter 1 month data show a sharp reversal with key Value factors sharply weakening and many Growth attributes rebounding significantly. Despite the modest premium valuations of Growth sectors (on historical comparisons of relative earnings yields), returning doubts regarding the economic and corporate outlook appear to be encouraging investors again to seek out securities favoured to achieve superior growth in earnings. After several months when hopeful expectations of returning economic stability supported a rebound in cheaper Value stocks, it is not surprising that economic disillusionment should cause a reversal. But it is concerning how broadly this reaction is evident across the major markets and regions. If markets forecast economies this is very discouraging; but it is, for now, just one month’s data.

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While the 3 month Style Map continues mixed, the shorter 1 month Style Mape reveals the recent outperformance of Small Cap and Value securities across the key markets and regions. It is noticeable that the Value gains are not consistent across all Value factors, nor are they particularly dramatic against the scale of the recent market gains (and one major market, the US, looks left out of the Value rally). But the theme does look to be broadly established and the apparent newfound enthusiasm for profits growth (the usual cyclical trigger for a Value upturn) is supported by the gains recorded by highly geared companies as well. From recent valuation comparisons (historic and historic relatives) Large Value is relatively inexpensive while Small Value, even after recent gains, still looks fairly valued. In many regions Growth looks just a bit dear.

Introduction

This article examines the performance characteristics of 425 global equity funds over 2012.  It is based on funds benchmarked against MSCI World, where Style Research has collected the underlying holdings on a monthly basis.  We examine the overall returns, and then decompose these into that due to, in turn, country & currency positions, sector bets, and exposures to eighteen Style factors.  We also look at the stock selection results within these groupings.

Summary

• Only a quarter of funds outperformed the index over the year
• Most funds benefited from positions in Japan, Germany and Canada
• Funds lost out by underweighting Financials, but gained from avoiding Utilities and Energy.
• Stock selection was weak for the majority in Australia, but better in (global) Industrials and Materials.
• Style pattern reversals over the year proved difficult for most funds.  Only positions in Momentum and Earnings Growth were helpful for most managers.
• Individual fund vs. peer group performance attribution charts are available from Style Research upon request.

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The 3 month Style Map and the more recent data provide clear evidence of the extent and the breadth of the current Value rebound in Western and Developed Markets. While it might be that through December investors were positioning themselves in anticipation of a resolution of the US budget crisis and resumed global economic recovery. And considering the current relative valuations of the key Styles (Value is still undervalued against its usual discounts to Growth), this might have looked a sensible bet. But in the light of current skepticism over the likely impact of the awkward political compromises in the US and with continuing weaknesses in Europe, it is not clear that developed economies will strengthen enough to support a profits resurgence any time soon. It would be good to interpret the recent Value gains as a predictor of recovery but it’s probably just year end positioning.