Why are Growth and Value diverging so much this year?

The Russell 1000 Value index has outperformed Growth by over 14% this year, driven by a rebalancing methodology that dramatically shifted AI leaders. Semiconductors, the "picks and shovels" of AI, dominated the Value index early on, while hyperscalers like Amazon and Microsoft were a drag on Growth.

This dynamic flipped after Russell's June rebalance. Semiconductors moved into the Growth index, and hyperscalers shifted to Value. This coincided with a market inflection where semiconductors corrected and hyperscalers rebounded, further boosting the Value index.

The divergence shows passive investors might not own what they intend. Active management can regain control over style exposure, which is notoriously difficult to time correctly. Over five years, Growth and Value returns have been nearly identical, underscoring the value of active management.