Ariel hunts for value amongst the small-, mid- and large-cap universes, as well as international stocks. The benchmarks above track the performance of these asset classes.
As we approach the mid- point of the year, foreign fare is clearly leading in what has been a remarkable five months. Large- and mid-cap U.S. equities are tracking fairly closely and are on pace to achieve good to great 2017 campaigns. Small caps are barely positive for the year, lagging other equities.
Beyond 2017, the last 12 months have clearly been a great year for stocks as evidenced by the style-based index performance over the last 12 months.
Every area above has notched impressive double-digit returns. These returns are high and also highly correlated. Indeed, aside from the fact that small-caps have outperformed the other areas, there is little discernable pattern among the returns. Typically, one can say that growth outdid value or vice versa, but not recently.
U.S. equity valuations remain elevated but not extreme. The BNY Mellon data for the S&P 500 Index dates back to 1993. Since that time, its forward P/E ratio has averaged 17.1X. At the end of the first quarter of 2017, it reached 18.2X. It has not been this high since 2003. For context, it reached 26.6X in 1999, so it is nowhere near its historic peak levels.
Our view remains consistent. We believe the market has gotten a bit ahead of itself, which likely lowers near-term returns but does not necessarily foretell a downturn, much less a bear market. Longer term, our belief that stocks hold enticing reward potential remains quite firm. As such, attempting to time the market remains unwise.
The opinions expressed are current as of the date of this commentary but are subject to change. The details offered in this commentary do not provide information reasonably sufficient upon which to base an investment decision and should not be considered a recommendation to purchase or sell any particular security.
