THE global economy is robust and not showing any signs of weakness yet. One of the best measures of the direction that growth may be taking happens to be the OECD leading economic indicator. It bottomed in December and is still rising.And looking at an indicator of trading activity in goods, the Baltic Dry Index, it is on the rise and isn't losing much momentum. Meanwhile, the global purchasing managers' index has rebounded strongly in the past three months.

Global liquidity conditions are still not restrictive but many central banks are poised to tighten further. As for the credit markets, there is lingering concern about the effect of the sub-prime mortgage problem in the US. But, in general, spreads haven't widened substantially and deals are still being made. However, many of these had been arranged earlier and we will have to wait a little to assess the impact on further deal-making.

Subsequent to the failure of two Bear Stearns hedge funds, which had large leveraged positions in sub-prime mortgage CDOs, there are continuing rumours of trouble among other hedge funds. Indeed, according to the well-known cockroach theory, it would be unusual if more of them did not surface.

The Vix index spiked higher on June 26, as it had done in late February and early March. A notable fact is that it has failed to retreat to the low levels registered during January and February, indicating heightened concerns about risk. There are a sufficient number of risk factors out there that could result in another spike in due course.

Meanwhile, the Move index of bond-market volatility is currently even more reluctant than the Vix to descend to lower levels. It is registering reaction to more challenging credit market conditions and shifting views about the economic outlook.

Official inflation numbers aren't particularly alarming and core inflation has actually been lower than expected in some major economies. However, with global growth still strong, it is the forward outlook that causes concern among both investors and policy makers. In other words, there is a perception of rising inflation risk.

The Bank of England increased its benchmark rate by a quarter-point to 5.75 percent, after refraining to do so at the previous policymaker meeting. Mervyn King, the governor, is a stalwart inflation fighter and may have finally convinced dithering members of the Monetary Policy Committee to pull the trigger.

Gordon Brown, the new PM and former chancellor is lovably referred to as a Stalinist. It was Brown who gave the BoE independence in conducting monetary policy, cutting the umbilical cord with the Treasury. However, decision-making at the Bank is decidedly non-Stalinist. Mervyn King cannot bash the other MPC members into line.

It's a shame because in matters of inflation fighting most sensible people would prefer a hard-line approach. Meanwhile, Jean-Claude Trichet, the ECB president correctly identified monetary conditions in the Eurozone as being accommodative, signalling that a rate increase is in the cards.

One aspect of style-investing in equities is to make a distinction between growth and value. Broadly speaking, and without going into all the details, value-investing refers to a selection process that favours stocks with low valuation ratios, such as price-to-earnings and price-to-sales.

As for growth stocks, their major characteristic is fast-growing earnings or sales, even while valuations remain toppy. And, a GARP (growth at a reasonable price) strategy is almost self-explanatory. The aim here is to select stocks that have good growth prospects but are reasonably priced, compared to their universe.

Some investors consistently favour a particular style, while others like to switch between them according to their interpretation of economic and financial circumstances. And some let the market decide which style is in vogue and overweight it accordingly. The decision not to fight the crowd is a perfectly sensible strategy.

So which style is on top right now? There are various definitions of how to classify growth and value, but unless one is particularly finicky, one can refer to readily accessible indices provided by Standard & Poor's. Accordingly, we will use the S&P indices to conduct the analysis.

As you would expect, there are major differences between the large and small cap categories. Looking at the biggies, over the past five years value has beaten growth by a huge margin. It is still ahead, over a one year period, by about two percentage points. Year-to-date — taking prices for the equivalent ETF at close of trade on July 5 - - value had a total return of 8.75 percent while growth returned 7.93 percent.

Not unexpectedly, in the past five years, the small-cap growth style has handily beaten value. It is also well ahead, year-to-date, by a good four percentage points. One notable feature is that large-cap growth has lagged value by a bigger margin than small-cap value has lagged growth. Evidently, big firms are weak growth-performers, fat and lazy compared with the nimble small ones.

At the start of the year, many Wall Street analysts were touting the growth style. They were also roundly in favour of large caps. So let's take a look at the large-cap universe versus the small caps. Year-to-date, the small fry (S&P 600), have performed better than the big firms (S&P 500). So, it appears that the fashionistas are showing some independence and have been selective about adopting the recommended styles.

Here's the blurb.

Iraj Pouyandeh is a Strategist and Senior Portfolio Manager at LOM Asset Management. For more information on LOM Asset Management please visit www.lomam.com