Don’t Judge
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?
WRONG.
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.
Expressions of opinion are as of this date and are subject to change without notice. The information provided does not constitute tax, legal, accounting, or other professional advice and is without warranty as to the accuracy or completeness of the information. Any information provided is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation to buy, hold or sell any security. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There are limitations associated with the use of any method of securities analysis. Indices are included for informational purposes only; investors cannot invest directly in any index. Every investor’s situation is unique, and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Past performance does not guarantee future results. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that any statements, opinions or forecasts provided herein will prove to be correct.
