This horse race has become kind of fun. It all started back on July 3rd, in our mid-year wrap-up edition. In a nutshell, we were looking for value stocks to start outpacing growth stocks. We were also looking for mid-cap growth to be harshly dethroned as the leader, and anticipated large cap value would pull out of its slump. The other cap/style groups weren’t as easy to read, so we didn’t make a firm forecast for them until July 17th. At that time we started to favor small caps (value as well as growth, but mostly value).

Take a look at table below. The two-month total is actually all of last month’s results combined with the to-date results of this month…pretty much the timeframe in which we’ve been interested. The numbers tell the tale.

Sure enough, small caps are leading the pack, value is dominating, and mid cap growth is getting crushed. You can thank us later.

The lesson learned is simple enough…when rotation becomes evident, act on it. You won’t always be right (nor will we), but you should right often enough to offset the times when you’re not. After all, the difference between the top and bottom performers is 12.5 percentage points….and that’s just for a five week period! Imagine what a difference this exercise could mean if done a few times a year.

Is it too late to act now? Not entirely, though the bulk of the disparity is on the past. You may be just as well off waiting for the next style and market cap rotation hints. We’ll let you know when we see them.

By the way, the obvious vehicle to turn these theories into tangible trades is via style and market cap ETFs. However, we also encourage you to look for individual stocks within each of these groups. The correlation within each style/cap cluster is surprisingly strong. And, if you can find the hot sector at the time, you stand to do even better. A little more work? Yeah, but worth it.

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