Equity Style Analysis: Growth vs. Value
Recent Equity growth style outperformance may be testing the resolve many investors have to remain diversified. Although it is nearly impossible to predict when and to what extent these performance and valuation trends will reverse themselves, historically they have. Rather than try to predict future trends, investors should consider remaining diversified over the long term.
- November 2018
In the Near Term, Growth has Dominated Value
- A review of rolling 5-year relative returns shows a trend that many investors are already aware of. Growth equities have generally been outperforming value since the 2007-2008 financial crisis.
- In the trailing two years, Growth stocks have returned 24% annually, while their Value counterparts managed to return 12% annually.
- This recent outperformance has been driven largely by the information technology sector, which now accounts for 33% of the Russell 1000® Growth Index. 10 years ago that sector constituted 29% of the index.
- Specifically, the FAANG stocks (Facebook, Apple, Amazon, Netflix and Google (Alphabet)) now account for nearly a quarter of the Russell 1000 Growth Index (22.9%).
All data as of September 30, 2018.
Russell 1000 Growth vs. Russell 1000© Value
Difference in Rolling 5-Yr Annualized Returns
Source: Factset. As of September 30, 2018. Growth represented by the Russell 1000 Growth Index and Value represented by the Russell 1000 Value Index. Past performance does not guarantee future results.
- Since 1984 the average calendar year returns for Growth and Value have been 12.6% and 12.5%, respectively.
- Value has outperformed Growth in a slight majority of years (18 to 16).
Calendar Year Returns of Value vs. Growth
| 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | 1993 | 1994 | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Russell 1000 Value |
10.1 | 31.5 | 20.0 | 0.5 | 23.2 | 25.2 | -8.1 | 24.6 | 13.6 | 18.1 | -2.0 | 38.4 | 21.6 | 35.2 | 15.6 | 7.4 | 7.0 | -5.6 | -15.5 | 30.0 | 16.5 | 7.1 | 22.3 | -0.2 | -36.9 | 19.7 | 15.5 | 0.4 | 17.5 | 32.5 | 13.5 | -3.8 | 17.3 | 13.7 |
| Russell 1000 Growth |
-1.0 | 32.9 | 15.4 | 5.3 | 11.3 | 35.9 | -0.3 | 41.3 | 5.0 | 2.9 | 2.6 | 37.2 | 23.1 | 30.5 | 38.7 | 33.2 | -22.4 | -20.4 | -27.9 | 29.8 | 6.3 | 5.3 | 9.1 | 11.8 | -38.4 | 37.2 | 16.7 | 2.6 | 15.3 | 33.5 | 13.1 | 5.7 | 7.1 | 30.2 |
| Value Out/Under Performance |
11.1 | -1.3 | 4.6 | -4.8 | 11.9 | -10.7 | -7.8 | -16.7 | 8.6 | 15.2 | -4.6 | 1.2 | -1.5 | 4.7 | -23.1 | -25.8 | 29.4 | 14.8 | 12.4 | 0.3 | 10.2 | 1.8 | 13.2 | -12.0 | 1.6 | -17.5 | -1.2 | -2.3 | 2.3 | -1.0 | 0.4 | -9.5 | 10.3 | -16.6 |
Source: Factset. As of December 31, 2017. Past performance does not guarantee future results.
Over the Long Term, Value Investors Have Been Rewarded
- Despite these recent trends, a long-term review shows that value stocks have generated 11.2% annualized returns since 1984 compared to 10.9% for growth, which has led to outperformance for long-term value investors.
Cumulative Return—Growth of $10,000
(12/31/83—09/30/18)
Source: Factset. As of September 30, 2018. Past performance does not guarantee future results.
Value Stocks May Have...Value
- The forward price to earnings ratio of Growth is above the historical average of 19.7%. Value is below its average of 13.8%.
- September 2003 was the last time growth valuations were at their current levels.
- In the five years that followed, Value stocks more than doubled the total return of growth stocks (Oct 2003-Sept 2008).
Value Stocks May Be Attractive
Russell 1000 Growth and Value Forward Looking Price to Earnings Ratios (1998-2018)
Source: Factset, As of September 30, 2018.
Recent Growth outperformance may be testing the resolve many investors have to remain diversified. Although it is nearly impossible to predict when and to what extent these performance and valuation trends will reverse themselves, historically they have.
Rather than try to predict future trends, investors should consider remaining diversified over the long term.
Past performance is not a guarantee of future results.
Diversification does not ensure a profit or protect against a loss.
Forward price/earnings (or P/E) ratio is the ratio of the company's closing stock price to its estimated 12-month earnings per share.
This does not constitute investment advice or an investment recommendation.
Growth stocks may be more sensitive to market movements because their prices tend to reflect future investor expectations rather than just current profits. Growth stocks may underperform value stocks during given periods.
Value stocks may perform di erently from the market as a whole and may be undervalued by the market for a long period of time.
The Russell 1000® Growth Index measures the performance of those Russell 1000 companies with higher price/book ratios and higher forecasted growth values. The stocks are also members of the Russell 3000® Growth Index.
The Russell 1000® Value Index measures the performance of those Russell 1000 companies with lower price/book ratios and lower forecasted growth values. The stocks are also members of the Russell 3000® Value Index.
The indices are unmanaged, are not available for direct investment and do not incur expenses.
AMG Funds LLC is a subsidiary and U.S. distribution arm of A iliated Managers Group, Inc. (NYSE: AMG).
Not FDIC Insured | May Lose Value | Not Bank Guaranteed
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