There have been four clear reversals in the market really over the past six months which I think are pretty substantial.
Shift from high-return to low-return environment
The first is the fact that we've gone from a high-return environment to a low-return environment. If you look at the five-year annualized return of the Russell 2000 at the end of June of last year, it was north of 17 percent. That same number at the end of December would have been below 10 percent. Not surprising given the correction we saw in the latter part of last year.
Value is now ahead of growth
The second reversal has been that we've gone from an environment where growth has dominated to one where we think value has dominated. And it's really been clearly seen in the fact that you've been in an environment where growth has outperformed value in the Russell 2000 over five out of the past six years.
But in the down market cycle that we saw in the latter part of last year, that has continued into this year and in 2016, the value has clearly outperformed and we think that's significant on a variety of different levels, especially for active managers like ourselves.
Earners are beginning to outperform non-earners
The third reversal that you've seen in the market this year is you've gone from a period of time where earners have underperformed and non-earners have outperformed.
This reversal started in July of last year. And it was really led by biotechnology. The peaking of biotech and the rollover in biotech has really continued again into the market this year. So we think that's pretty significant.
Over-levered companies are beginning to underperform
And the last reversal we've seen in the market has been the fact that access to capital is getting increasingly more difficult for companies. So those companies that have over-levered balance sheets are starting to underperform in the overall market.
And once again, we think this is extremely important as we think about our world and the fact that real businesses that don't necessarily need access to the capital markets that have real earnings are where the market is gravitating to in what has been a very difficult environment for the market, at least so far this year.
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