On a three-year performance basis ending 30 April, four of the top performing North American equity funds were all growth funds.
On the flipside, three of the five worst performing funds were value funds.
|
Five best performing funds* |
Performance |
Benchmark |
|
Morgan Stanley US Advantage in US |
12.71 |
S&P 500 |
|
Legg Mason ClearBridge US Large Cap Growth in US |
12.66 |
Russell 1000 Growth |
|
Morgan Stanley US Growth in US |
12.54 |
Russell 1000 Growth |
|
T. Rowe Price US Large Cap Growth Equity in US |
12.4 |
Russell 1000 Growth |
|
AB FCP I American Growth Portfolio in US |
11.98 |
Russell 1000 Growth |
|
Five worst performing funds* |
Performance |
Benchmark |
|
Amundi Equity US Relative Value in US |
3.64 |
S&P 500 |
|
BlackRock GF US Basic Value in US |
3.91 |
Russell 1000 Value |
|
Aberdeen Global North American Equity in US |
4.19 |
S&P 500 |
|
Pictet US Equity Selection in US |
4.59 |
S&P 500 |
|
Invesco US Value Equity in US |
4.78 |
S&P 500 |
*Three-year period to 30 April 2017. Source: FE Analytics
The significant difference between growth and value funds is their weighting to information technology. The benchmark of the top-performing growth funds, the Russell 1000 Growth Index, has a 30% weighting to IT. Four funds that follow this index have allocations of at least 32% or more to IT.
The Morgan Stanley US Advantage fund also allocated around 32% of the portfolio to the IT sector, even if IT only accounts for 22% of its benchmark index, the S&P 500 Composite.
Turning to the benchmarks of value funds, they have a lower weighting of 10%-22% to the IT sector. The funds’ weightings in the sector fall in the same range.
Looking at year-to-date performance (to April 30), the results are the same. All top five performing funds were growth funds, while the worst performers were mainly value funds.
|
Five best performing funds* |
Performance |
Benchmark |
|
Morgan Stanley US Growth in US |
19.69 |
Russell 1000 Growth |
|
Wells Fargo Worldwide US All Cap Growth in US |
14.92 |
Russell 3000 Growth |
|
Wells Fargo Worldwide US Large Cap Growth in US |
14.49 |
Russell 1000 Growth |
|
JPM US Growth TR in US |
13.94 |
Russell 1000 Growth |
|
T. Rowe Price US Large Cap Growth Equity in US |
13.61 |
Russell 1000 Growth |
|
Five worst performing funds* |
Performance |
Benchmark |
|
BlackRock GF US Basic Value in US |
-1.35 |
Russell 1000 Value |
|
Parvest Equity High Dividend USA in US |
1.24 |
S&P 500 |
|
Eastspring Inv North American Value in US |
1.36 |
S&P 500 Value |
|
BNY Mellon US Dynamic Value in US |
1.41 |
Russell 1000 |
|
Invesco US Value Equity in US |
1.69 |
S&P 500 |
*2017 to 30 April. Source: FE Analytics
Financials and tech
Tony Finding, a London-based multi-asset portfolio manager at M&G, told FSA in an earlier interview that given the high valuations in the US, he prefers to be active on the sector level and likes financials and technology.
However, a look at the data shows that the S&P 500 Financials Index has consistently under-performed the S&P 500 IT Index.
Most of the worst-performing funds’ largest weightings are in the financial sector. Over a three-year period, the value funds in the chart allocated an average of 23% of the portfolio to financials.
|
|
YTD |
One year |
Three years |
|
S&P 500 IT |
15.41 |
35.36 |
17.68 |
|
S&P 500 Financials |
1.66 |
27.16 |
11.91 |
Source: FE Analytics
Growth vs value
Taking all the 17 US growth funds and ten US value funds out of the 72 actively managed North America funds available for sale in Hong Kong, the average performance of all growth funds is significantly higher than that of value funds.
Average performance
|
|
YTD |
One year |
Three year |
|
17 Growth funds |
12.08 |
17.76 |
9.44 |
|
10 Value funds |
2.49 |
15.03 |
5.69 |
Source: FE Analytics
The outperformance of growth funds again could likely be attributed to sector allocation. Growth fund allocations are similar to that of thee respective benchmark indices. According to FE data, growth indices outperformed the value indices over several time periods.
|
Index |
YTD |
One year |
Three years |
|
Russell 1000 Growth GTR in US |
11.4 |
19.5 |
12.11 |
|
S&P 500 Growth GTR in US |
10.65 |
19.15 |
12.13 |
|
S&P 500 Value GTR in US |
3.22 |
16.13 |
8.42 |
|
Russell 1000 Value GTR in US |
3.07 |
16.55 |
8.26 |
Source: FE Analytics
Luke Ng, senior vice president of research at FE Advisory Asia, said that North American value equity funds rebounded and performed better than growth in 2016, but in 2017 they underperformed.
“Growth came back in favour in 2017 and outpaced that of value, thanks primarily to stronger consumer confidence and better corporate earnings of the growth companies,” he said. The IT, consumer discretionary and healthcare sectors are the top performing sectors so far this year, he added.
“Under these circumstances, growth funds have a better chance to post stronger performance than that of the value-focused funds in the region year-to-date and over the long term,” he said.
