Growth and Value % in S&P 500

dryflower

By market cap, what percentage of the S&P 500 are growth stocks, and what percentage value? I am rather persuaded by the idea that one should be agnostic towards future returns of any particular factor, but my guess is that if one were to invest in VOO today, he would have more money invested in growth than value. Of course as we all know, over the long term, value has beaten growth, and as we all also know, that does not mean that value will beat growth in the future.

Would not a portfolio of half VIGAX and half VIVAX be a more "agnostic" portfolio than VOO or VTSAX?

Of course, with any of these market weighted indexes it could be said that there is an implicit bet on large stocks vs. small stocks, but maybe that is a different question. And maybe RSP could be part of the answer.

I guess the overall question is, for domestic equities, how would one achieve the most perfectly agnostic index?

Rbrt

I think Mr Bolin explores a variation of this idea here: https://www.mutualfundobserver.com/discuss/discussion/57398/building-downside-protection-for-retirees#latest
I could see rather than a simple stock / bond rebalance, someone could do a growth / value rebalance. Might as well throw in small cap also.

Mark

If I were to own a S&P 500 fund I would be inclined to split it into a growth index and a value index and rebalance as necessary or so inclined.

dryflower

So does anyone know the current percentage by market cap that is growth? (In the S&P500)

carew388

+1 Mark I might try that with the VG etf index funds.

Rbrt

dryflower said:

So does anyone know the current percentage by market cap that is growth? (In the S&P500)

You can look at - https://investor.vanguard.com/mutual-funds/profile/portfolio/vigax
Compared to - https://investor.vanguard.com/mutual-funds/profile/portfolio/vuvlx
And - https://investor.vanguard.com/mutual-funds/profile/portfolio/vfiax

And tell us what you find.

dryflower

For the top 10 holdings in VIFAX, I see 23.1% growth and 5.1% value. Don't think I'll go through all 509 names tonight.

Rbrt

I see:
VIFAX. VIGAX. VUVLX
M CAP 161.b 223. 50.4
PE. 27.6. 42.4. 16.7
PB. 3.8. 9.2. 2.0
ROE. 19.6. 21.1. 13.0
Also, if you put 10k in growth & 10k in value 3 years ago, you’d be 64% growth & 36% value now. So you would rebalance - but if investing today, would you overweight value? By how much?

Mark

@Rbrt - not necessarily would I overweight. Have that plan in the works ahead of time and stick to it. If it doesn't work out then decide if you need a new plan. The whole exercise is meant to take your biases, or the markets, out of the equation. Everything else is either timing or guesswork which may be the same. Just my opinion.

Edited to add: For the record I am primarily a dividend growth investor. I do not own a S&P 500 fund. My portfolio is roughly 50% individual equities, 25% Pimco bond CEF's and 25% assorted other holdings. While this portfolio has and continues to provide more monthly income than I need it really hasn't provided and semblance of massive growth. In the end my comments on the S&P business do not reflect things that I have done.

msf

Generally and simplistically speaking, index providers (e.g. S&P) simply rank stocks from 100% value to 100% growth, and put the "left" half into value and the "right" half into growth. It's all relative and they're agnostic as to where an objective absolute line would be drawn between growth and value.

So there's no value in asking how many stocks are in the growth index vs the value index. They're evenly divided.

For example, the S&P MidCap 400 constituent with the highest Value Score would have a Value Rank of 1, while the constituent with the lowest would have a Value Rank of 400.

The index constituents are then sorted in ascending order of the ratio Growth Rank/Value Rank. The companies at the top of the list have a higher Growth Rank (or high Growth Score) and a lower Value Rank (or low Value Score) and, therefore, exhibit pure growth characteristics. The companies at the top of the list, comprising 33% of the total index market capitalization, are designated as the Growth basket.

The companies at the bottom of the list have a higher Value Rank (and Value Score) and a lower Growth Rank (and Growth Score) and, therefore, exhibit pure value characteristics. The companies at the bottom of the list, comprising 33% of the total index market capitalization, are designated the Value basket. ...

The middle 34% of float market capitalization consists of companies that have similar growth and value ranks. Their market capitalization is distributed among the Style indices based on their distances from the midpoint of the Growth basket and the midpoint of the Value basket ... [That is, S&P puts stock in the middle third of the universe into both value and growth indexes, with proportions determined by where among the "blend" stocks they sit - closer to value or closer to growth.]

https://www.spglobal.com/spdji/en/documents/methodologies/methodology-sp-us-style.pdf

The Vanguard index funds mentioned, VIGAX and VIVAX, are based on CRSP indexes. While CRSP uses its own formulas for scoring value and growth attributes of stocks, ultimately it too ranks stocks based on their relative scores and partitions according to their rankings. Here's CRSP's methodology (start at page 30 for growth/value partitioning).
http://www.crsp.org/files/Equity-Indexes-Methodology-Guide_0.pdf

Mark

@msf - I've always thought of the S&P 500 as a stock market index that tracks the stocks of the largest 500 U.S. companies. Today's market environment does not lead me to believe that the current list is made up of a 50-50 split growth v. value. You?

msf

The S&P 500 is designed by committee to be "representative" of the US market. So it is not a collection of the 500 largest companies, though it resembles that list.

Given that the objective of the S&P Committee is to represent the market, to the extent that it meets that objective, your question could be rephrased: is today's market growthy (are most companies, where "most" means more than 50%, growth companies)? Hard to disagree with that.

My point was just that by design, growth index + value index = total index; further, the partitioning is effectively 50/50 so one gets little insight by seeing how many stocks fall where.

Another way to address (ore evade) your question is: essentially by definition cap weighted indexes are (slightly) growth oriented, since they add more weight to companies that have grown faster.
https://www.morningstar.com/articles/967411/is-market-cap-weighting-a-momentum-strategy-in-disguise

Derf

Mark +1
Stay Safe, Derf

dryflower

@msf We're not asking about the number of stocks in each group. We are asking about market weighting.

msf

Would not a portfolio of half VIGAX and half VIVAX be a more "agnostic" portfolio than VOO or VTSAX?

VIGAX + VIVAX ≈ VOOG + VOOV = VOO

Further:

one of the design goals [of S&P] is to construct a Style index series that divides the complete market capitalization of each parent index approximately equally into growth and value indices

Emphasis added. Op. cit.

Since market cap is split equally between the value and growth indexes, buying equal amounts of each would simply reconstruct the undivided (parent) index. Weightings would not be affected.

dryflower

Thank you for the education. To confirm, I took the average of the growth (+37.23%) and Value (+25.82%) for 2019 and get an average of +31.5%, which equals the return of the 500 index.