MARKET INSIGHTS: VALUE CAN POP WITHOUT A GROWTH DROP
Growth stock stories can be compelling for investors - and make for great news. However it’s worth noting historically that value stocks have outperformed growth stocks in the US (which is the largest stock market in the world by far), often by a striking amount.
Data covering nearly a century backs up the notion that value stocks—those with lower relative prices—have higher expected returns. It’s possible to think value stocks post strong relative returns only because growth stocks underperformed, not because value delivered strong absolute performance.
Since 1927, US value stocks outperformed US growth stocks in 58 out of 97 calendar years. During positive value premium years, growth stocks returned an average of 10.25% compared to their average across all years of 11.86%—lower, but not exactly a tank job. Only in 17 out of 58 positive value premium years was growth’s return negative. On the other hand, value’s average return in positive value premium years, 25.08%, markedly exceeded its long-run average return, 15.93%.
We will take this into account when it comes to saving for your future.
