Why Growth Stocks Are Winning

Surprisingly, the reason relates to income inequality.

John Rekenthaler 25 November, 2015 | 9:21
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In each of those areas, growth stocks also have higher betas than value stocks, as with large companies. But small- and mid-cap growth companies did not trounce their value counterparts in the rally. Small growth beat small value by a modest 117 basis points per year, while mid-value enjoyed a slightly stronger victory over mid-growth. Overall, the two styles were a wash.

Thus, something different happened with large-growth companies--something that is not addressed by MBA finance classes that teach CAPM. That something was income inequality.

Dumb and Dumber
Income inequality is as familiar a subject as it is misunderstood. Everybody has heard about the 1% versus the 99% via political discussions. Democrats decry income inequality as coming from Republican policies. The Republicans have responded either through ostrichlike denials or by countering that, actually, it is President Obama’s fault.

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John Rekenthaler  is vice president of research for Morningstar.

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