Value—it’s the Real Thing
For style-neutral investors, the debate between value and growth may feel a little like being a water drinker watching the cola wars unfold—a mildly entertaining distraction with little real consequence. But a look at the last 15 years shows style leadership and the gap in performance may serve as an indicator of market direction for investors of all stripes.
As shown by the black line, when growth outperforms value by a significant margin, performance for the broader market (blue dashed line) has often stumbled during the following six months. Conversely, when value has led, forward returns for the broad index have benefited—such as in the first half of 2010 and late 2016.
While current data suggests solid economic growth in the months ahead, we would be more comfortable with the direction of the market if value was to once again rebound versus growth.
Past performance does not guarantee future results.
Investing involves risk, including the potential loss of principal. There is no guarantee that a particular investment strategy will be successful. Value investments are subject to the risk that their intrinsic values may not be recognized by the broad market.
The statements and opinions expressed in this article are those of the presenter(s). Any discussion of investments and investment strategies represents the presenter’s views as of the date created and are subject to change without notice. The opinions expressed are for general information only and are not intended to provide specific advice or recommendations for any individual. Any forecasts may not prove to be true. Economic predictions are based on estimates and are subject to change.
Growth and value investing each have unique risks and potential for rewards and may not be suitable for all investors. A growth investing strategy emphasizes capital appreciation and typically carries a higher risk of loss and potential reward than a value investing strategy; a value investing strategy emphasizes investments in companies believed to be undervalued.
Definitions: S&P 500 Index: is an index of 500 U.S. stocks chosen for market size, liquidity and industry group representation and is a widely used U.S. equity benchmark. S&P 500 Growth Index: measures growth stocks using three factors: sales growth, the ratio of earnings change to price, and momentum. S&P Style Indices divide the complete market capitalization of each parent index into growth and value segments. Constituents are drawn from the S&P 500. S&P 500 Value Index: measures value stocks using three factors: the ratios of book value, earnings, and sales to price. S&P Style Indices divide the complete market capitalization of each parent index into growth and value segments. Constituents are drawn from the S&P 500. All indices are unmanaged. It is not possible to invest directly in an index.
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