One of the biggest challenges in investing is timing a rotation from a style that is currently in favor into a style that is currently out of favor. This was the challenge in 1999 and is so again today. In April 1999, the NY Times had an article titled “Mutual Fund Report; What’s Killing the Value Managers?”; history doesn’t repeat itself but it surely does seem to rhyme.

Back to 2020. Concentration in the equity markets has been a topic of conversation in the past year. Five years ago, Apple, Amazon, Facebook, Google, and Microsoft were 9.5% of the S&P 500. At the end of the second quarter, these five companies accounted for 21.7% of the S&P 500. These same five companies account for 45.7% of the Nasdaq 100 and Amazon itself is 44.4% of the total market of all the companies in the S&P 500 Consumer Discretionary sector. The current average forward P/E of these five companies is over 40, doubling from mid-March. As a result, the forward P/E of the Russell 1000 Growth Index at the end of the second quarter was 32.7. Since 1995, the only other time the forward P/E of the Russell 1000 Growth Index was this at this level was in late 1999 and in 2000, the heart of the dot-com bubble where it reached a peak forward P/E of 43.5 in July 2000. Over the entire 1995 to present period, the average forward P/E is 20.3. While equity valuations in general have increased as a result of low nominal rates, the increase has been more pronounced in the growth factor as the spread of the forward P/E of the Russell 1000 Growth Index is 11 P/E points more than the forward P/E of the Russell 1000 Value index.