Another Look At Growth Versus Value

Writing blog commentary serves as a permanent record of one's thoughts at a specific point in time. When reflecting back on earlier posts, expectations and conclusions do not always unfold in the market or economy as anticipated and written about at that time. The benefit is one can adjust future thinking and conclusions if necessary. Sometimes events occur that one simply could not anticipate and the events result in a change of direction in the market. All investors would benefit in tracking how they arrived at their investment decisions..

It seems over the last few weeks there has been much written about the outperformance of growth stocks versus value stocks. The extended outperformance of growth over value has pushed the relative valuation to a high for the growth style and a low for the value style and was referenced with a chart in the June monthly presentation by State Street Global Advisors. The below chart is a slightly different version but shows the higher relative valuation of large cap growth versus large cap value at this point in time.

I believe one of the most difficult projections to get correct is drawing a conclusion about the growth versus value equity style. As the below image shows, there are factors associated with the economy (where is the economy in relation to the business cycle) and then specific factors related to stocks and bonds and getting most of these variable forecasts correct can be a difficult task.

Source: iShares by BlackRock

Nonetheless, I have written articles over the past few years regarding the growth versus value style.

The 2016 analysis turned out to be correct as value outperformed growth in 2016. In 2014, growth and value returns were nearly identical as can be seen in the calendar year return chart below, but growth outperformed value in the following year.

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