Morningstar - Q3 2021 - 27

and launching socially responsible fixed-income
funds beginning in the early 2000s. This advantage
in sustainable investing appears to be driven
at least in part by local investor preferences. Since
the 1970s, for example, Norway's sovereign
wealth fund has developed sustainability criteria
within its investment objectives, setting
a standard for other large domestic asset owners
to follow.
TRENDS
Small-Cap Growth Stocks Magnify Market Trends
Styles Have Changed Over the Past Year
Sector
o Energy
r Basic Materials
y Financial Services
p Industrials
s Consumer Defensive
d Healthcare
u Real Estate
i Communication Services
a Technology
f Utilities
t Consumer Cyclical
As investors continued to rotate out of fastgrowing
company stocks and into value
names in May, small-cap growth stocks were
left in the dust.
Small growth, a former Morningstar Style
Box leader with a 43.5% return in 2020, is now
the bottom-performing grouping in the U.S.
stock market. The Morningstar US Small Growth
Index dropped by 4.80% in one month
alone, pulling it into negative territory for the
year through May.
Healthcare and technology were among the
biggest detractors within small growth
during May. All small-growth sectors except
for utilities and consumer cyclical lagged
the broader market sectors. Meanwhile, energy
companies-which are currently leading
the market-are notably absent from the ranks
of small-growth companies.
Small growth's recent underperformance is
part of a bigger trend: the market rotation from
growth into value. Value is coming up as
a clear leader so far this year, with small- and
mid-cap names particularly strong. But large-cap
growth stocks still hold a big lead over the
past three years, despite underperformance early
this year.
Lauren Solberg is a data journalist at Morningstar.
1.92
-1.07
-2.15
-2.96
-9.41
-3.15
-2.31
-3.05
-2.03
-2.23
Style Box Performance:
May 2021
Value Blend Growth
2.86 0.56 -1.45
3.38 1.26 -1.90
3.13 -0.12 -4.18
< -5.0%
Year to Date
Value Blend Growth
15.68 10.75 5.39
25.91 14.49 2.34
31.53 19.34 -1.54
-
In more recent years, the 2015 Paris Agreement,
greater sustainability-related disclosure
requirements in several countries such as France
and the Netherlands, and the release of
the European Union's action plan on sustainable
finance in 2018 have accelerated the adoption
of ESG strategies by institutional investors across
Europe. Institutional money has flowed into
sustainable funds at an accelerated pace, with
5.98
5.93
2.96
2.56
1.51
0.83
0.67
-0.30
-1.03
-2.36
-3.71
Small Growth
%
U.S. Market
%
retail investors holding only 10% to 25% of
sustainable ESG assets, depending on classifications.
In contrast, in the United States, the retail/
institutional asset split is closer to 50%/50%.
Despite rapid growth, the U.S. sustainable
fund market continues to lag Europe, largely
owing to the political and regulatory environment.
U.S. regulation had fluctuated between
-10
-5
5
10
-4.9 to -0.1%
0.1 to 4.9%
2020
Value Blend Growth
-0.62 19.66 38.86
-3.76 13.53 46.17
1.01 6.18 43.52
Source: Morningstar Direct. Data is based on Morningstar Style Indexes. Data as of 05/31/2021.
> 5.0%
3-Yr Annlzd
Value Blend Growth
11.79 18.06 22.18
10.67 15.94 22.59
9.76 11.30 15.63
Small Growth Sectors Lagged in May
Sector
o Energy
r Basic Materials
y Financial Services
p Industrials
s Consumer Defensive
d Healthcare
u Real Estate
i Communication Services
a Technology
f Utilities
t Consumer Cyclical
Small Growth
%
-
1.92
-1.07
-2.15
-2.96
-9.41
-3.15
-2.31
-3.05
-2.03
-2.23
Source: Morningstar Direct. Data is based on Morningstar
Style Indexes. Data from 05/01/2021 to 05/31/2021.
U.S. Market
%
5.98
5.93
2.96
2.56
1.51
0.83
0.67
-0.30
-1.03
-2.36
-3.71
-10
-5
5
10
27
Small Mid Large
Small Mid Large
Small Mid Large
Small Mid Large

https://www.morningstar.com/articles/1042020/whats-dragging-down-small-growth

Morningstar - Q3 2021

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