Beyond just growth and value: Investors are tired of choosing
People looking for simpler ways to make investments
NEW YORK - Coke or Pepsi? Biggie or Tupac? Growth or value?
For decades, investors chose their stock mutual funds from one of two distinct camps. On one side were growth funds, which bought only the most dynamic stocks with the fastest-rising revenues and profits. On the other were value funds, which hunted the bargain bin for stocks with cheap prices relative to their earnings.
Today, just like more people are choosing neither Coke nor Pepsi, investors are pulling out of both growth and value stock funds. Instead, they’re pouring cash into broad index funds and other options that don’t pigeonhole themselves into one of the two investing philosophies.
The moves are the result of several trends that are reshaping the investment industry. Chief among them: People are looking for ever-simpler ways to invest, and they’re opting for index funds that track the broad market. So instead of holding a small-cap growth fund plus a largecap value fund plus a mid-cap growth fund, more investors are holding just one fund that tracks the entire stock market.
The numbers bear out the change in preference. Investors pulled a net $36.2 billion from U.S. growth stock mutual funds and exchangetraded funds in the 12 months through January, according to Morningstar. Another $42.6 billion left U.S. value stock funds.
At the same time, $12.5 billion went the opposite direction, into “blend” funds, which own a mix of both growth and value stocks.
Growth and value stocks tend to take turns at the top, with growth leading for some years before ceding leadership to value. Growth stocks, for example, were in favor during the dot-com boom of the late1990s. Investors at the time were excited about the “new economy” and were more interested in companies attracting “eyeballs” than in those making profits.
After getting burned by the dot-com bust, chastened investors turned back to value stocks. For seven years, the value stocks in the broad Russell 3000 index beat their growth counterparts, from 2000 through 2006. After that, growth stocks regained the lead and had better returns in five of the next seven years.
So instead of guessing whether growth stocks will do better than their value counterparts, investors are simply buy- ing broad-market funds that own both groups.
Perhaps the biggest reason for the trend is the migration into index funds generally, said Alina Lamy, a senior analyst at Morningstar. After seeing the majority of actively managed stock mutual funds fail to keep up with indexes, investors have been streaming into options that merely try to match the index rather than beat it.
Before dumping growth or value stock funds and going into these broad-market index funds, investors need to be OK with getting the market’s returns. With index funds, they’ll no longer have the chance of beating the market. They might also trigger a capital-gains tax bill, if they’re selling growth or value funds that have been sitting in a taxable account for many years.
In exchange, though, investors are getting lower fees and the assurance that they won’t do any worse than the market.
The Federal Communications Commission has taken the first step toward opening up the pay TV set-top box marketplace.
The fivemember commission voted Thursday 3-2 to begin the process of crafting possible rules that could give consumers new devices and apps to access and manage pay-TV programming and other content. The vote went along party lines with Chairman Tom Wheeler and commissioners Mignon Clyburn and Jessica Rosenworcel, all Democrats, voting to approve, while Republicans Ajit Pai and Michael O’Rielly voted against.
Congress in 2014 instructed the agency to increase set-top box competition and Wheeler has argued that such action could decrease costs for consumers. “Consumers deserve a break and a choice,” he said Thursday.
Set-top box rental fees coast consumers more than $200 annually, Rosenworcel noted, adding that the “clunky set-top box and its many-buttoned remote have not evolved at the same pace” as smartphones.
Pai sympathized with consumers, saying he owns three set-top boxes and admitting “they are clunky and expensive and I feel the pain each and every month when I pay my bill.”
However, he said the goal of the proposal is misguided because technology has allowed consumers choices beyond pay TV. “Our goal should not be to unlock the box; it should be to eliminate the box.”