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The S&P/TSX financial services, energy and materials indexes now account for 75 per cent of the value of the Toronto Stock Exchange. Such blue chip value stocks as Royal Bank of Canada, Suncor Energy Inc. and Canadian National Railway Co. trade at or near record share prices.
That shift in value supports the increasing sentiment that momentum-driven growth stocks may soon be back in vogue.
Investor interest in growth stocks and funds is on the rise, reports mutual fund giant Investors Group of Winnipeg.
"In the last couple of quarters, we've seen a resurgence or a renewed interest in the values of growth stocks," said A. Scott Penman, president and managing partner of I.G. Investment Management Ltd.
He predicts that in the near future, there may be less "disparity between growth and value" stocks when it comes to performance.
Growth fund managers argue that the economic outlook supports their investment thesis. Bluewater's Mr. Taller claims that interest rates and economic growth in Canada will be modest going forward. Companies with cash flow and earnings-growth rates that exceed the economy will enjoy accelerated share-price gains.
Mr. Taller's growth-stock picks include Cognos Inc., Canada's largest software company, and Biosite Inc., a U.S. clinical diagnostics company.
Stabilizing oil and commodity markets mean many Toronto Stock Exchange-listed companies will be hard-pressed to meet lofty profit expectations that call for an average growth rate of about 24 per cent in 2006, predicts Phillips Hager & North Investment Management Ltd. The Vancouver money manager says the bulk of TSX-listed companies will disappoint and report earnings gains this year in the high single digits.
"We really do think the timing to rotate from value to growth is now," said John Montalbano, president of PH&N.
"Growth-biased managers like ourselves are in a very favourable position for the next leg of the market," he said.
"In an environment where profit growth is decelerating and investor expectations are revising downward, it is one that is pretty ripe for emerging quality growth companies to outperform."
It's inevitable that market sentiment will shift, said Dan Hallett, an independent fund analyst based in Windsor, Ont.
"Look at the raw numbers... the nature of the market is cyclical," he said, adding that it might be time to revisit some of the growth-oriented funds that did well in the 1990s.
"If there's a manager you like that happens to be out of favour right now, it might be a good time to commit more money to the fund," Mr. Hallett said.
While the industry mulls the timing of growth's return, financial advisers preach diversity and urge clients not to fixate on a manager's investment style.
For example, Investment Planning Counsel Inc., a Mississauga company with about 550 financial advisers, recommends that prudent investors own a mix of value- and growth-focused funds.
"It's best to have one investment style offset another," said Chris Reynolds, IPC president. "It is very, very hard to predict whether growth or value . . . is going to outperform."
A fund manager's investing style is an important factor when building a portfolio, said Adrian Mastracci, a Vancouver financial adviser at KCM Wealth Management Inc.
"But do I worry about it a lot? No," he said. "Over a five year window, I'll get mileage out of growth and value. Let's stick with quality and buying the right fund for the client.
"If I stick with that, I'm going to be more right that wrong."
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