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Time for a style shift

October is often the month when we change our sartorial style from shorts and t-shirts to jeans and sweaters. This October also saw a shift in style occur within the Russell US Style Indexes.

After the third quarter closed out with growth indexes recording higher performance than their value counterparts,[1] October saw a return to higher performance for the value indexes—mirroring the style leadership of the early part of the year.

Could value be on pace to close out 2016 in style?

Let’s take a look at some of the drivers behind the reversion to value leadership in October. From a sector perspective, almost everything was down for the month with a few minor exceptions (primarily a small uptick in Financial Services). The Healthcare sector fell significantly across the board as uncertainty around the Affordable Care Act—a key issue in the US election—took its toll.

Given the sector biases of the various Russell Style Indexes, we can understand why there was less of an impact on the value indexes for the month. As we can see below, the Russell 1000, Russell 2000 and Russell 3000 Growth Indexes all have a strong bias to Healthcare; the corresponding Russell 1000, Russell 2000 and Russell 3000 Value Indexes exhibit overweights towards Financial Services, Energy, and Utilities. As noted, Healthcare fell significantly in October, while the Financial Services, Energy and Utilities sectors each had strong relative performance for the month.

After an eight-year streak of underperformance for each of the Russell Value Indexes compared with the Russell Growth Indexes,[2] year-to-date 2016 has seen a change of pace. As we can see in the first chart above, the value indexes are vastly outperforming the growth indexes on a year-to-date basis through October. And now that the outcome of the US presidential election is known, time will tell if value can remain in the driver’s seat to close the year out in style. 

Please follow the FTSE Russell Blog for more on post-election market moves.  

  

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[1] For more information on third-quarter results please see Small Caps Rebound in Q3.

[2] Source: FTSE Russell, from the Lehman Bankruptcy in September 2008 through October 2016
 

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