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A Dramatic Reversal in the Market

Those value funds you own that have annoyed you? Take a look now. Many are surging.

Securities In This Article
Oakmark Global Investor
Ariel International Investor
Fidelity Small Cap Value Fund
Morgan Stanley Inst Growth A
Fidelity Capital & Income

Morningstar FundInvestor editor Russ Kinnel sent this alert to his readers this morning.

Wow, what a time in the markets. Last week, the markets rallied as it became apparent that Joe Biden would win the election for U.S. president and that Republicans would gain some seats in the House. But this week has been even more interesting. Over the weekend, the election was called for Biden, and on Monday morning, Pfizer PFE announced a coronavirus vaccine with 90% efficacy that would start to be rolled out by December. Also, experts explained that good news made it more likely that other vaccines would prove effective.

The result was the great reversal in fortune that market watchers have expected for years. Small value had a massive rally and growth declined. As you know, growth has been running laps around value thanks to super-fast growers like AMZN and Tesla TSLA. But since COVID-19 hit last March, the dynamic gap grew greater. Value tends to be more economically sensitive, and the recession came out of nowhere. Thus, energy, manufacturing, restaurants, and retailers other than supermarkets and Amazon got crushed. On the flip side, Zoom ZM, Peloton PTON, Amazon, and others profited from everyone staying home.

Those value funds you own that have annoyed you? Take a look now. Many are surging.

The top performer for the month so far is Oakmark International OAKIX, which was up 21.3% in just the first 10 days of November. Causeway International Value CIVVX was up 21.2%, Causeway Global Value CGVVX was up 19.9%, and Oakmark Global OAKGX was up 17.1% through Tuesday, Nov. 10. Other big value winners include the downtrodden Hotchkis & Wiley Mid-Cap Value HWMAX, up 16.7%; Fidelity Small Cap Value FCPVX, up 16.1%; and Dodge & Cox International Stock DODFX, up 15.7%. On a relative basis, Fidelity Capital & Income FAGIX has also been impressive, with a 4.5% gain that put it in the top percentile for the month.

In absolute terms, the funds hurting most are mostly those with some interest-rate risk rather than growth stocks because the growth stocks were invited to last week's party even though they were shut out of this week's vaccine rally. Vanguard Long-Term Treasury VUSTX shed 1.5% in November's first 10 days. Vanguard Total International Bond Index VTABX fell 0.4%. Mortgages lost a bit as evidenced by Fidelity Mortgage Securities' FMSFX 0.2% decline and DoubleLine Total Return Bond's DBLTX 0.1% drop.

A couple of noteworthy relative underperformers are Morgan Stanley Institutional Growth MSEGX, which was bottom 3% with a 2.6% gain as its Internet-heavy portfolio took a breather. The fund is still up an insane 82.1% for all of 2020, so I'm sure no one's complaining. Ariel International's AINTX quality portfolio is also lagging as quality stocks often do in a cyclical-driven rally. The fund's 6.2% month-to-date gain puts it in the bottom 2% of its peer group.

The 2020 Picture Although small value has made up a lot of ground, growth still dominates the 2020 picture. Large growth is up 24.8%, followed by mid- and small-growth at 23.0% and 20.0%, respectively. Small value is down 6.7% for the year, followed by mid-value's negative 4.9% return and large value's negative 3.2% return.

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About the Author

Russel Kinnel

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Russel Kinnel is director of ratings, manager research, for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He heads the North American Medalist Rating Committee, which vets the Morningstar Medalist Rating™ for funds. He is the editor of Morningstar FundInvestor, a monthly newsletter, and has published a number of prominent studies of the fund industry covering subjects such as manager investment, expenses, and investor returns.

Since joining Morningstar in 1994, Kinnel has analyzed virtually every type of fund and has covered the most prominent fund families, including Fidelity, T. Rowe Price, and Vanguard. He has led studies on the predictive power of fund data and helped develop the Morningstar Rating for funds and the Morningstar Style Box methodology. He was co-author of the company's first book, Morningstar Guide to Mutual Funds: 5-Star Strategies for Success (Wiley, 2003), and was author of the book Fund Spy: Morningstar's Inside Secrets to Selecting Mutual Funds That Outperform, published in 2009.

Kinnel holds a bachelor's degree in economics and journalism from the University of Wisconsin.

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