Since the U.S. Food and Drug Administration rolled out emergency-use approval for COVID-19 vaccines, a shift in market leadership occurred from secular growth companies to those with high economic sensitivity that tend to comprise value indexes. From this point in November 2020, value indexes have consistently outperformed growth indexes.

Value outperforming growth aligns with a classic cyclical recovery and reflects underlying differences in how value and growth indexes are constructed. Value indexes tend to have a lower-quality bias than their respective growth counterparts due to their construction methodology placing a greater emphasis on price-to-book value—an increasingly irrelevant measure in recent decades.

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z - Cover Image: Understanding Value Benchmark Construction and the Need to Seek Quality

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INDEX DEFINITIONS: The S&P 500® Index is a market capitalization-weighted index that includes 500 of the largest U.S. companies. The Russell 3000® Index is a market capitalization-weighted index that measures the performance of the 3,000 largest U.S. companies. The Russell 3000® Growth Index is a market capitalization-weighted index of growth-oriented stocks of U.S. companies. The Russell 3000® Value Index is a market capitalization-weighted index of value-oriented stocks of U.S. companies. The Russell 1000® Growth Index is a market capitalization-weighted index of growth-oriented stocks of the 1,000 largest companies in the Russell Universe, which comprises the 3,000 largest U.S. companies. The Russell 1000® Value Index is a market capitalization-weighted index of value-oriented stocks of the 1,000 largest companies in the Russell Universe. The Russell Midcap® Growth Index is a market capitalization-weighted index of medium-capitalization, growth-oriented stocks of U.S. companies. The Russell Midcap® Value Index is a market capitalization-weighted index of medium-capitalization, value-oriented stocks of U.S. companies. The Russell 2000® Growth Index is a market capitalization-weighted index of growth-oriented stocks of the smallest 2,000 companies in the Russell Universe, which comprises the 3,000 largest U.S. companies. The Russell 2000® Value Index is a market capitalization-weighted index of value-oriented stocks of the smallest 2,000 companies in the Russell Universe, which comprises the 3,000 largest U.S. companies. The indexes are calculated on a total return basis with dividends reinvested. The indexes are unmanaged, their returns do not reflect any fees, expenses, or sales charges, and they are not available for direct investment.

The commentary is the opinion of Ceredex Value Advisors, Kayne Anderson Rudnick, and NFJ Investment Group. This material has been prepared using sources of information generally believed to be reliable; however, its accuracy is not guaranteed. Opinions represented are subject to change and should not be considered investment advice or an offer of securities.

IMPORTANT RISK CONSIDERATIONS: Equity Securities: The market price of equity securities may be adversely affected by financial market, industry, or issuer-specific events. Focus on a particular style or on small or medium-sized companies may enhance that risk. Value Stocks: Value stocks are subject to the risk that the broad market may not recognize their intrinsic value. Geographic Concentration: A portfolio that focuses its investments in a particular geographic location will be sensitive to financial, economic, political, and other events negatively affecting that location. Market Volatility: Local, regional, or global events such as war, acts of terrorism, the spread of infectious illness or other public health issues, recessions, or other events could have a significant impact on the portfolio and its investments, including hampering the ability of the portfolio manager(s) to invest the portfolio’s assets as intended.

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