Value has outperformed Growth across most five-year periods since 1945. When will Value reassert itself? Keep your eyes on rates.

http://www.pionline.com/article/20150810/PRINT/308109984/the-time-for-value-investors-is-coming-maybe

What is the advantage of active management, given the uncertain times ahead?

Active managers have had difficulty outperforming their benchmarks during the current six-year equity bull market. With equity markets appearing fairly valued and equity return outlooks moderating, we believe that active management has the potential to shine in a more uncertain environment ahead.
 From our perspective, active management has been challenged due to the distinctive qualities of the recent market environment. Periods of largecap equity outperformance have tended to act as a drag on excess returns for those investing in all-cap strategies.In the Russell 3000 Index, the largest 1 percent of stocks makes up 28 percent of the overall index weight. Active allcap portfolios tend to take an equalweighted approach across security holdings and skew toward smaller-cap names relative to the index. The relative performance of smaller caps versus larger caps can have a significant impact on portfolios.
 Additionally, many active managers hold a percentage of companies domiciled outside the United States. In the current bull market, through the end of 2014, U.S. stocks have outperformed international stocks by 8 percent, annualized. In 2014, the difference was even more pronounced, with U.S. stocks outperforming non-U.S. stocks by 16 percent. As of the and of the 1st quarter of 2015, this trend has reversed, with non- U.S. stocks outperforming domestic ones.
 Finally, in the recent environment, a small number of stocks have driven overall index performance. With the Russell 3000 Index, only 40 percent of constituent stocks are outperforming the overall index—a number not seen since the dot-com bubble. The fewer names that outperform the benchmark, the harder it generally is for an actively managed portfolio to outperform.
 Markets have historically moved in cycles. Generally, environments that have favored a passive investment approach have often been followed by periods in which companies with attractive fundamentals become more fully appreciated. Significantly, we know that earnings per- share growth has accounted for 70 percent of the S&P 500 Index’s total returns over the past 20 years. 
 Also, should we enter a more “normalized” environment, volatility would likely be higher than in recent experience. This would create more opportunities to take advantage of price movements. Once interest rates begin rising, the valuation distortions created by aggressive central bank easing will likely reverse, which could create an environment with more valuation dispersion among individual stocks. Such environments would present attractive outperformance potential for active managers with effective security selection skill.
 One period often ripe for active management is the aftermath of a stock market bubble. Although not by design, passive investing represents a de facto momentum strategy. Since the indices tracked by most passive products are market-cap weighted, a sector exhibiting significant momentum will receive an increasing weight in the portfolio: A passive investor tracking the Russell 3000 Index would have held 33 percent of his portfolio in technology stocks in March 2000, before the bursting of the dot-com bubble, and 23 percent in financials at the end of 2006, ahead of the global financial crisis.
 By contrast, while active managers trailed the Russell Index prior to the dotcom peak, this reversed in its aftermath. In fact, outperformance after the market collapsed was more than four times the underperformance during the rally.
 We caution investors against making portfolio decisions in reaction to recent market experience. As the environment for potential outperformance becomes more favorable, investors may rediscover the benefits of active management.