The benefits of a growth/value blend
We believe it’s important to own both growth and value stocks in a portfolio. A blend of the two investment styles has offered the most compelling risk/reward over time, as shown in the Better together chart below, balancing the historically higher volatility in value and lower return in growth.
Our research also reveals that growth and value are essentially anti-correlated: One generally thrives in an environment where the other lags, and vice versa. This means investors can build a more resilient, all-weather portfolio by incorporating the relative strengths of both growth and value – and can potentially enhance those results by working with astute managers that can consistently beat their growth/value benchmarks.
Risk and reward for growth, value and blend, 1926-2020
Source: BlackRock, with data from the Kenneth R. French Data Library. Growth is defined as the lowest 30% of companies in the universe as ranked by the book-to-market ratio, which is calculated by dividing a stock’s book value by its market capitalization. Value is defined as the highest 30% of companies in the universe as ranked by the book-to-market ratio. Blend reflects a 50/50 blended return of growth and value. The reward/risk ratio is calculated using monthly data from July 31, 1926, to Dec. 31, 2020. The reward/risk ratio is defined as the annualized portfolio return divided by the annualized standard deviation of the portfolio.