From The Desk Of Dan Seder
The famous saying, “don’t judge a book by its cover” can be applied to many things in life, including investing. For example, the Russell 1000 Value Index provides exposure to US companies that are thought to be undervalued by the market relative to comparable companies. Its counterpart, the Russell 1000 Growth Index, includes US companies whose earnings are expected to grow at an above-average rate relative to the market.
Two pretty distinct identities, right?
As it turns out, 217 of the 463 companies in the Russell 1000 Growth Index also show up in the Russell 1000 Value Index. WOW....that’s nearly 47%! This overlap spans Nasdaq constituents like Alphabet (formerly Google) and Texas Instruments to traditional value names like Procter & Gamble and Coca-Cola.
Capitalize On The Data
We can use this unique insight to our advantage. In addition to the companies represented in both the Russell 1000 Growth and Value indices, we added another screening filter of at least 10bps exposure in each index. This produced a select list of 31 undervalued companies that are expected to grow their bottom line. Here’s a sneak peek at the sector breakdown:
As you can see, this screening process excludes the S&P 500’s ~14% exposure to deep value sectors. Diversification into Energy, Materials, Real Estate and Utilities must be handled separately. Overall, using this process can help us create a strong foundation when building a core portfolio of Growth at a Reasonable Price (GARP). Keep in mind, this is only one methodology that we use to manage our clients’ portfolios. To learn more about how we evaluate companies, download this timeless article we wrote from nearly a decade ago.