Sunday, September 16, 2007

Tracking A Shift Across The Style Cube

The style box looks at returns as a function of two intersecting dimensions: large cap/small cap and growth/value. In my own reviews of market performance, I add a third dimension to create a style cube: international vs. U.S. returns.

A click on the chart above will provide a detailed look at a portion of the cube for 2007. We're looking at EAFE value (EFV), EAFE growth (EFG), and U.S. large caps (SPY). Recall that EAFE stands for Europe, Australia, Far East. The iShares EAFE style indexes provide a nice look at returns outside the States.

Notice that we see the same dynamic noted in my previous post: value underperforming growth over the 2007 period.

Since the market peak in July, however, we've seen a different shift than the one noted in my prior post. Here are returns from the peak through 9/14/07:

EFV: -6.97%
EFG: -5.34%
SPY: -3.98%

We're seeing international bourses underperforming the U.S. during this period, with value leading the way down. The weak dollar--which really is a strong Euro--may be responsible for some of this weakness, as goods produced abroad are less competitive (more expensive) in the U.S. market. The surging price of oil may also be taking a toll on countries that are heavy importers, especially those--like Japan--with weak currencies.


My Previous Look at the Style Cube