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Monday, March 2, 2015

The Apple Effect

The data is very strong that over the long term large cap value stocks outperform large cap growth stocks

Below is a graph of growth of wealth of large cap value vs large cap growth and total stock market for the last 20 years.
Large cap value (red) total stock market (blue) large cap growth (green)

But that is over the long term and there are certainly periods where the opposite is the case. This is certainly the case ytd. And the gap between large cap growth and value is  attributable to a large extent  to one stock...Apple. Apple has a zero weighting in the large cap value index and a large weighting in the large cap growth and nasdaq index and even a high weighting in the S+P 500

Below I have calculated the "Apple effect" ytd by calculating the weighting of apple in each ETF and multiplying it by the Apple performance year to date. As you can see the "apple effect' explains a large part of the large cap value index underperformance.

weighting             ytd
    apple      effect
vug large cap growth 7.7% 4.6% 1.29%
spy S+P 500 3.9% 2.5% 0.65%
qqq Nasdaq 15.0% 5.3% 2.52%
vtv large cap value 0.0% 1.0% 0.00%
apple 100.0% 16.8% 16.8%

This pattern has been in effect for a longer period here is a graph of VTV large value vs AAPL Apple.

Apple (brown) vs S+P 500 one year

I will leave it to others to forecast whether or not this will continue.

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