The old saw that Value investing beats Growth investing actually has held true over an extended investment horizon: since common inception in 1978, the all-cap Russell 3000 Value Index has outperformed the Russell 3000 Growth Index, and with lower volatility.
However, the last 15 years have defied this paradigm. Through April 2022, Growth outperformed Value by nearly 5% on an annualized total return basis and in 11 of the last 15 calendar years. Here’s our take: US policy makers probably erred coming out of the Global Financial Crisis by not complementing loose monetary policy with sufficient fiscal stimulus to repair the economic damage. As such, the subsequent economic recovery was the longest—but also the slowest—in post-World War II history.
Value stocks tend to thrive in a constructive economic backdrop. However, in a slow and disappointing growth environment, many investors will place a premium on stocks of companies capable of growing revenue and earnings in a vacuum, regardless of gross domestic product growth. In this context, the recent dominance of US equity market returns by the so-called FANGMAN1 stocks of companies that helped change the way we communicate with friends and family, shop and pay for things, spend our leisure time, and consume and store data, makes sense.
