Growth stocks (interchangeably called the glamour stocks) are shares in those firms who reinvest their profits and deliver more returns as compared to the market average returns.  However, the recent turmoil in the global markets have led to a heavy correction in most of the stocks which includes even the “growth stocks”. This decline had raised concerns among investors over carrying forward their positions given the current volatile conditions in the markets.
 

US equity market volatility (Source: Thomson Reuters)
 
On the other hand, investors who entered the stock markets during tough market conditions have generated strong returns during the course of time. But it is prudent to track the market volatility and accordingly position the investments and exposure based on the risk appetite and objectives. In a way it is important to make cautious investments during the volatility. For instance during the period of great recession in 2008, VOLATILITY S&P 500 (INDEXCBOE: VIX) surged over 109.16%. But the VOLATILITY S&P 500 (INDEXCBOE: VIX) fell over 44.7% during 2009 (Jan 09, 2009 to December 31, 2009). Accordingly, the S&P 500 (INDEXSP: .INX) generated outstanding returns of 166.4% from the great recession till date (from March 06, 2009 to February 26, 2016). Australian index S&P/ASX 200 (INDEXASX: XJO) delivered over 45.9% for the same period (during March 06, 2009 to February 26, 2016). Asian markets also made a smart recovery since the great recession, wherein the Nikkei 225 (INDEXNIKKEI: NI225) delivered around 114% returns (from March 06, 2009 to February 26, 2016). Even, SSE Composite Index (SHA: 000001) generated 32.86% returns during the same period while India’s NIFTY 50 (NSE: NIFTY) reported outstanding returns of 154.6%.
 
Meanwhile, growth stocks have generated better returns than the average index returns. Particularly, S&P 500 Growth (INDEXSP: SP500G) delivered outstanding returns of 183.82% during the aforementioned period as compared to S&P 500 (INDEXSP: .INX) returns of 166.4%. The specific highlights entailed mid cap and small cap growth stocks performing better, on an average, than the large cap stocks. For instance, Dow Jones U.S. Mid-Cap Growth Total Stock Market Index (INDEXDJX: DWMG) and Dow Jones U.S. Small-Cap Growth Total Stock Market Index (INDEXDJX: DWSG) generated returns in the range of 221.6% and 206.96%, respectively during March 06, 2009 to February 26, 2016. These returns are better than the Dow Jones U.S. Large-Cap Growth Total Stock Market Total Return Index (INDEXDJX: DWLGT) returns of 190.76% during the same period.
 
However, investors who have tried to time the market rise/downfalls have often entered the markets before the downturns and consequently had to suffer heavy losses. Investors who have entered or exited the stock market frequently also could not completely enjoy the benefits generated from the best period’s returns. Therefore, we believe that investors benefit more when they are able to withstand the turmoil in the stock markets as well as economic conditions while targeting for long term prospects. Glamour stocks have been generating better returns as compared to the blue chip or average index returns and we believe that investors need to understand the associated risks with such stocks, during the challenging market conditions and build their portfolio accordingly. On the other side, some of the growth stocks might even have the capability to survive during the turmoil in the markets and even generate returns. For example, stocks like WAM Capital Ltd (ASX: WAM) has generated over 11.67% returns in the last six months (as of February 26, 2016) even though the S&P/ASX 200 (INDEXASX: XJO) declined over 6.75% during the same period (as of February 26, 2016).
 
 
WAM Daily Chart (Source: Thomson Reuters)
 
The Australian volatility index S&P/ASX 200 VIX INDEX (INDEXASX: XVI) surged over 35.47% during this year to date (as of February 26, 2016) given the ongoing tough market conditions and heavy fall of commodity prices impact on Australia’s core sectors especially mining companies. Accordingly, investors can analyze and investigate properly to decide between waiting for the volatility to subside and accumulating growth stocks in their portfolios that are trading at very attractive valuations. This would help generate strong returns in the coming years. Also, one can look for dividend paying growth stocks wherein volatility may be lower than the indexes such as the S&P 500. To conclude, it is always beneficial to bank on a long-term horizon while staying away from the short-term fluxes.

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