Last month, I discussed how some mathematicians tried to make a quick buck on Wall
Street with their fancy computer models. Now I want to tell you about another recent failed scheme--this time involving the S&P 500.

There's a group of structured managers on Wall Street known as "trackers." They sound like something out of a hi-tech movie. These trackers take an index like the S&P 500, and remix it using fancy mathematical models in an attempt to squeeze out more gains.

But when the trackers replicated the stocks held in the S&P 500, they didn't use the normal S&P 500 index that's weighted by market value. Instead, they equally weighted each stock in the index. This strategy worked wonders after the tech bubble burst when many trackers were able to remix the S&P 500 and dramatically outperform it. That is, until August.

The problem is that the equal-weighted index was heavily weighted with value stocks. When the markets sold off, traders dumped value stocks, and the equal weighting strategies took a hit. Ever since August 16, the equally weighted S&P 500 has badly lagged the regular S&P 500.

Now, everyone in money management is re-shuffling their portfolios so they don't fall behind the S&P 500. The exodus out of value is relentless. Key components of the value indices are under siege, particularly financials. Citigroup (C), Merrill Lynch (MER), UBS (UBS) and Washington Mutual (WM) have all warned about their earnings, which will accelerate the selling pressure in the interest-rate-sensitive value stocks.

I'm confident that growth stocks will dramatically outperform value stocks for the next 12 to 18 months. However, the growth parade has the potential to march much longer. For example, based on the Russell 1000 Value versus Russell 1000 Growth indices, value stocks outperformed growth stocks for seven straight years from 2000 through 2006. Before that, growth was on a six-year winning streak from 1994 through 1999.

This is a great time to get a look at my favorite small-cap growth stocks in my Emerging Growth service. I just posted the latest issue for subscribers. I have five new stocks to add to our Buy List.