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For the past decade, value stocks have been trending lower on a relative basis versus growth stocks; that appears to be changing.

One way in which investors can segment the equity market is by style, i.e., value vs. growth. Value stocks tend to be those trading at discounted prices relative to earnings while growth stocks are often higher priced and faster growing. Many folks argue that the proximity of the market cycle has much to do with determining which style is en vogue at a given time. Specifically, growth stocks theoretically fare better during bull markets and value provides better protection in bear markets. We have actually found that the favored style has more to do with the behavior of the underlying sectors than it does the overall market cycle.

For example, growth stocks typically have a heavy weighting toward technology and discretionary sectors. Because of that, growth stocks led the advance in the late-1990′s and fared worse in the subsequent decline following the bursting of the tech bubble. Meanwhile value has large weightings toward financial and energy stocks. Thus, value led the rally into the 2007 top, then also led the decline into 2009 as those sectors were decimated. Furthermore, value has continued in a clear downtrend vs. growth for the past decade.

Looking at the present, one of the under-the-radar winners of the post-election “Trump trade”, thus far, has been the value portion of the stock market. And in fact, thanks in large part to the rally in financial and energy stocks, value looks to be breaking its 10-year downtrend vs. growth, at least when measured by the ratio of the Russell 3000 Value Index to the Russell 3000 Growth Index.

Now, even if the trendline break illustrated in the chart is for real and durable, it does not mean that value stocks have to rise and growth stocks fall. The overall market trend will dictate the likely path of both. Indeed, as the chart shows, each index has followed in the same direction for the past 14 years, despite the direction of the Value/Growth ratio. However, a new uptrend in the ratio would favor value stocks relative to growth.

If indeed value’s 10-year relative performance drought vs. growth is ending, investing in value stocks would appear to provide for a greater margin of error at this time. And thus, it would suggest that, in general, one now favor value stocks over growth.

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More from Dana Lyons, JLFMI and My401kPro.

Mitch’s Mailbox

Penfield, NY asks…

What is Zacks Investment Management's philosophy?

Thanks for asking Penfield - this is an important question as you'll want to be aligned, philosophically, with your investment manager to position the working relationship for success.

At the core of Zacks Investment Management’s philosophy is our belief that every client has unique needs and that there is no such thing as a “one size fits all” approach. With this in mind, we aim to treat each client situation with a highly personalized approach: taking time to understand your specific needs and goals and customizing your investment portfolio through use of our equity and fixed income strategies (whichever ones best meet your objectives).

Our investment decisions within client portfolios are informed by a combination of Zacks independent research (used by some of the largest financial institutions in the world over the past 40 years) and our own quantitative models. At any given point in time, we are monitoring well over 200,000 earnings estimates and brokerage recommendation data points looking for changes to fundamentals or outlooks to inform our models and, subsequently, our actions.

Our rigorous research process feeds into what’s known as the “Zacks Performance Rank,” a proprietary quantitative model based on trends in earnings estimate revisions and earnings per share surprises. Stocks are classified into five groups: #1 Strong Buy, #2 Buy, #3 Hold, #4 Sell, and #5 Strong Sell. Since inception, the Zacks Performance Rank has proven to be a reliable indicator for predicting future movements in stock prices over a 1-3 month time horizon. The portfolio managers at Zacks Investment Management take this powerful ranking system and use it as one critical element for building and managing investment portfolios for private clients like you.

Perhaps even more important than knowing what stocks to buy is knowing when to sell a winning position. Too often emotion comes into play and investors "fall in love" with a winning stock, or alternately a stock falls too far and an investor feels trapped into having to hold it until it recovers. Here at Zacks Investment Management, we have a strong sell discipline. Just as the Zacks Rank guides us towards stocks poised to outperform, in a similar fashion the model uses negative earnings revisions to tell us when to sell – and we won’t hesitate to sell.

From a high level, we believe in the utility of a well-diversified portfolio, whether that means diversifying between fixed income and equities, across various categories of equities, or both. Our active approach to research and analysis guides our investment decisions within investment portfolios, such that we’re ‘bottom-up’ focused once we’ve decided on a client’s overall allocation.

As you can see, we intensively leverage research to drive investment decisions for our clients. On 12/17/15 at 12:30p (ET), I will be hosting a teleconference where you will have the opportunity to easily tap in to hearing where we believe the market is headed in 2016.

Please join us -- space is limited so register sooner than later to reserve your spot. To register and submit a question for consideration to be answered, just click below...

FREE Teleconference:  Hear Mitch’s Zacks 2016 Market Predictions (12/17/15 at 12:30p ET)

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.

Salsbury Cove, ME asks...How Does an SMA Work?

This is one of those questions we answer frequently -- glad you asked!

“SMA” stands for Separately Managed Account, and it refers to a portfolio of assets managed by an advisor or a money management firm. Perhaps the easiest way to understand SMAs is to think of them in contrast to mutual funds. A mutual fund is comprised of various types of securities (stocks, bonds, REITs, etc.) that are maintained by a portfolio manager. An investor does not actually own shares of the underlying securities in the fund. Instead, you own shares of the mutual fund itself, which is priced at the end of each day using a ‘net asset value’ (NAV).

By contrast, a Separately Managed Account typically has an investment manager build you a custom portfolio using your assets to buy stocks, fixed income instruments and so forth in accordance with your goals. It’s almost as if the manager is building you your own mutual fund, except you own shares of each security and you can generally customize it however you’d like. If the portfolio manager purchased shares of Nike, Inc in your account, but you don’t like that company, you can remove it from your portfolio. You can’t do that in a mutual fund.

There are a couple of advantages to having a Separately Managed Account:

Customization – when a mutual fund is created and managed, it’s not done specifically with your investment objectives in mind. SMAs can be constructed according to your goals and preferences, and managed dynamically with your changing financial situation. Mutual fund managers don’t know anything about your goals – they are simply managing according to a set investment mandate or asset class, like ‘large cap growth.’

Tax Efficiency – SMAs allow the portfolio manager more flexibility in controlling gains and losses for the individual investor. Since you own each security in your portfolio directly, you have more options for how you harvest gains and losses. In a mutual fund, the portfolio manager is making trades in the fund for tactical reasons but also to handle redemptions, and the investor generally has to absorb whatever capital gains taxes occur as a result.

It’s also possible that SMAs can have competitive fee structures when looked at side by side with a mutual fund, but it really just depends on the money manager and which mutual fund you’re comparing.

I won’t go as far to say that SMAs are more advantageous than mutual funds. They are just different. In general – but not as a rule – mutual funds are better suited for investors with smaller amounts to invest, say $100,000 or less. The mutual fund can give that kind of investor broad diversification in one vehicle. With $100,000 or less, SMAs could present some diversification challenges. Amounts above that, however, can give the portfolio manager greater ability to spread assets around various securities and build a diversified portfolio.

If you're thinking about a Separately Manager Account, and want to know some good questions to ask a prospective money manager, read "What to Look for in a Money Manager."  This guide provides 10 tough questions you can ask as well as notes on what to look for in responses relative to your needs and mind-set for investing...

FREE GUIDE:  “What to Look for in a Money Manager”

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.