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Equity Style Analysis: Growth vs. Value

Growth stocks have outperformed value stocks recently, testing investor’s patience to stay diversified. Although it is nearly impossible to predict when and to what extent growth and value performance trends will reverse themselves, historically they have. Rather than try to predict future trends, investors should consider remaining diversified over the long term.

Growth Has Outperformed Recently

  • Over a two year period, growth stocks significantly outperformed value stocks, testing the patience of investors to stay diversified.
  • On a trailing two-year basis ending March 31, 2022, growth returned an impressive 37% annual average return—while value stocks had a 32% return. 
  • While a majority of sectors have been positive, returns for growth stocks have been overwhelmingly driven by the information technology sector. MAANG stocks (Meta, Apple, Amazon, Netflix, and Alphabet’s Google) now account for nearly a third of the overall Russell 1000® Growth Index (28.7%).


All data as of March 31, 2022.
Past performance does not guarantee future results.

Russell 1000 Growth vs. Russell 1000© Value
Difference in Rolling 5-Yr Annualized Returns

Source: Factset. As of March 31, 2022. Growth represented by the Russell 1000® Growth Index and Value represented by the Russell 1000® Value Index. Past performance does not guarantee future results.

  • The average return in the growth and value indices during a calendar year has been 13.9% and 12.4%, respectively, since 1984.
  • Since 1984, growth has slightly outperformed value.

 

Calendar Year Returns of Value vs. Growth

Source: Factset. As of March 31, 2022. Past performance does not guarantee future results.

Growth Outperformed Over the Long-Term

  • In the long term, trends favored growth stocks, as they generated 12.20% returns since 1984 compared to an 11.97% in value stocks.

Cumulative Return—Growth of $10,000
(12/31/83—03/31/22)

Source: Factset. As of March 31, 2022. Past performance does not guarantee future results.

Why Value? Relative Valuations Look Attractive

  • Investors may be seeking to hedge late cycle risk.
  • Relative valuation of value has not been as attractive since post-dot-com in 2002, which precipitated a long stretch of value outperformance. 
  • Last time growth valuations were stretched to these levels was Sept. 2003 and value stocks more than doubled the total return or growth in the five years that followed (Oct. 03 – Sept. 08). 

 

Value Stocks May Be Attractive
Russell 1000 Growth and Value Forward Looking Price to Earnings Ratios (1998-2022)

Source: Factset. As of March 31, 2022. Past performance does not guarantee future results.

Growth outperformance may test the resolve 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 trying 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 differently from the market as a whole and may be undervalued by the market for a long period of time.

Market prices of investments held by the Fund may fall rapidly or unpredictably due to a variety of economic or political factors, market conditions, disasters or public health issues, or in response to events that affect particular industries or companies.

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 Affiliated Managers Group, Inc. (NYSE: AMG).

Funds To Consider

YAFFX

Yacktman Focused Fund

The Fund seeks long-term capital appreciation and, to a lesser extent, current income by primarily investing in common stocks of U.S. companies.

YACKX

Yacktman Fund

The Fund seeks long-term capital appreciation and, to a lesser extent, current income by primarily investing in common stocks of U.S. companies.

TBGVX

Tweedy, Browne International Value Fund

The Fund seeks long term capital growth.

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