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Beating the S&P 500 by choosing its growth or value segment

Tony
in Fund Discussions
If you believe that there's any validity to the momentum anomaly, trend following, or persistence of performance, choosing the growth or value segment of the S&P 500 could be considered as a way to beat the S&P 500 over the short to intermediate term. Right now, growth is leading value, so you would choose VIGRX over VFINX, for example. The method could also be applied to other segments and indexes, for example, choosing QTEC over QQQ.

Comments

  • VintageFreakVintageFreak
    Hmm....Just for kicks I went to Portfolio Visualized. Plotted VFINX in one portfolio vs a 50-50 mix of VIVAX and VIGRX in another. The 2nd portfolio came out ahead and the its max draw down was 0.3-0.4 percent.

    I dunno about momentum, but what you are saying might have merit if value and growth zig zags for reasonable periods of time where trading decisions can be made. Visually that seems a bit hard to spot across the last 20 years.

    You could experiment with Portfolio Visualizer if you wanted to back test how much you would have allocated to one index or the other at different points in time. Might be fun.:-)
  • Tony
    VF, it seems to me that if you have a 50-50 mix of VIVAX and VIGRX, your results would be about the same as 100% in VFINX. I just looked a the 3-month total returns of VIVAX, VFINX, and VIGRX. They are 0.88%, 3.73%, and 6.85%, respectively. This isn't rigorous mathematically, but (0.88%+6.85%)/2 = 3.87%, close to 3.73%. The 1-, 6-, and 12-month returns work out similarly. I got my data from StockCharts.com.
  • davidrmorandavidrmoran
    It appears worthwhile to track RPG vs RPV vs SP500 over various intervals the last 11y, since the RP_ inception. (Growth wins over that span.)

    Being equal-weight, they also beat the cited Vanguard ones over the 11y span.

    I did not check shorter spans in detail, though it looks as though the Vanguard ones outperform for some and maybe most spans.

    Then compare all with CAPE, the last 4.5y of its existence.
  • VintageFreakVintageFreak
    edited May 2017
    Tony said:

    VF, it seems to me that if you have a 50-50 mix of VIVAX and VIGRX, your results would be about the same as 100% in VFINX. I just looked a the 3-month total returns of VIVAX, VFINX, and VIGRX. They are 0.88%, 3.73%, and 6.85%, respectively. This isn't rigorous mathematically, but (0.88%+6.85%)/2 = 3.87%, close to 3.73%. The 1-, 6-, and 12-month returns work out similarly. I got my data from StockCharts.com.

    Yeah. Actually they were a little with the 2 funds. So potentially, if you increase/reduce allocations across the 2 you could improve on the results. In theory.

    Also unless I'm mistaken both of the value and growth indices have some overlap in the holdings. Each of them has 300 stocks vs S&P 500. I could be wrong, but I seem to recall this is the case.

    The funny thing is both individual indices are market cap weighted. So if "value" is going down, you are actually not purchasing "value" because you will still buy more of the stocks that are going down less. Similarly, if "value" is going up, you are buying more expensive stocks when you invest in that index. Either way it is about momentum. So now I'm wondering if you could just pick either of the two and just buy and sell. Which makes it like any other security. No point trying to beat the s&p 500 index. You have reduced the problem to market timing an individual index/fund.
  • Tony
    davidmoran, another ETF pair to compare with SPY or IVV in a market timing strategy is MGK/MGV.
  • davidrmorandavidrmoran
    I'm not doing timing, and regardless, the arguable appeal of the RG_ set is that they are the opposite of megacap, being equal weighting of the SP500.

    RPG wins over the last decade, while MGV lags even SP500. Interesting.

    Over 5y it's RPV, with all the others bunched.

    So maybe a timing strategy would be the way to go. If only we knew how to do that.

    Over its last 4.5y, CAPE beats all.

    For all these spans, the performance of the two MG_ is inferior.
  • Tony
    I found that my premise was off. VIGRX (VIVAX) tracks the CRSP US Large Cap Growth (Value) Index, not the S&P 500 Growth (Value) Index. Vanguard does have ETFs and institutional mutual funds that track the S&P 500 Growth and Value indexes, however.
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