Once again, at the start of the year, investors face decisions to position portfolios for the year: large or small? Value or Growth? Quality? Domestic or international? EM? In the chart below you can find two long series regarding size and style. The dark line represents large cap growth vs value, and the light blue line is mall cap growth vs value. As you can see, for the last 40+ years, the behavior of the two lines has been very similar, with little divergence. Last year, the size and growth factor, however, played a key role as the market was focused on a few mega caps with growth characteristics while in the small cap space, style was almost irrelevant. In the past, those instances where the lines have detached from each other have been corrected and the lines have converged again relatively quickly. We can read this dynamic by saying that large cap Value will shine during 2024, which indirectly points to a slowdown scenario, or that small cap growth will play catch up with its large peers, which points to a recovery, speculative scenario. At this point in the economic cycle, it would appear that the first scenario has better odds to play out.
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Chart source: BoA research
