Value Has Trailed Growth, But That Won't Always Be The Case

The growth-versus-value debate continues, and the growth voices have gotten stronger given the decade-plus run of large cap growth names. However, we all know that investing decisions should not be based solely on what has been working recently. Investing decisions should be based on multiple considerations, and this blog post looks at three that should probably influence growth and value positioning moving forward:

  • Markets tend to run in cycles
  • Long-term history suggests that value has a role
  • Coming out of difficult economic periods, small and value stocks have historically led market recoveries

Markets tend to run in cycles: Growth stocks have dominated over the past 10 years

U.S. large cap stocks have been on a historically strong run relative to the rest of the stock market. The style box below shows how much large growth has dominated the other styles over the 10 years ending March 31, 2020.

(Click on image to enlarge)

Stocks over past 10 years

Large Cap: Russell 200 Growth Index, Russell 200 Index, Russell 200 Value Index, Mid-Cap: Russell Midcap Growth Index, Russell Midcap Index, Russell Midcap Value Index; Small Cap: Russell 2000 Growth Index, Russell 2000 Index, Russell 2000 Value Index

When market leadership lasts this long and the spreads become this wide, it can cause investors to rethink their diversified strategies. Is it time to jump on the large cap growth story and abandon smaller value stocks? For those that have been investing for a while, this narrative may sound familiar. Below is the same chart for the ten years ending Dec. 31, 1999, maybe the ultimate period for large cap growth investors. The pattern below looks very similar to the last 10 years.

(Click on image to enlarge)

Stocks during 1990s

The ‘90s were a great 10-year run for all U.S. equity participants, but investors still were questioning whether to abandon diversification and pursue strategies heavily dominated by large cap growth stocks. For those that stuck to their disciplines, they were richly rewarded over the next 10 years, with small cap value stocks beating large cap growth by over 200%. For those that gave up on value stocks, they saw large cap growth stocks lose 4.8% per year over the next 10 years.

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Russell Top 200® Index measures the performance of the largest cap segment of the U.S. equity universe. The Russell Top 200 Index is a subset of the Russell 3000® Index. It ...

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