Everyone is talking about it! Month after month and year after year, value investing in the equity space has been a losing bet against growth investing.
Value investing means buying stocks that appear to be “cheap” based on underlying fundamental metrics like price to earning/book ratios. Growth investing, on the other hand, means buying stocks that appear to be cheap based on their growth and earnings potential. News today from Vanguard that they are “giving up” on their active value mutual fund, Vanguard US Value Fund (VUVLX) since its returns have mirrored its passive counterpart, throws more angst into the mix.
How bad has it been? From the chart below, the long-term trend over the last 10 years has been humbling. The iShares Growth ETF (IVW, the purple line on top) has generated a cumulative price return of 330% over the last 10 years compared to 220% for the S&P 500 (IVV, the black line in the middle) and only 125% for the iShares Value ETF (IVE, the blue line holding up the bottom).
Total returns over the last 10 years ended June 30 are 16.40% for growth (IVW), 13.91% for S&P 500 (IVV), and 10.59% for value (IVE). Notably, a shorter horizon of YTD returns through June 30 puts it really into focus: IVW is up 7.81% easily besting IVV of -3.09% and absolutely crushing IVE of -15.55%!
While academics are still battling over the significance, it is unclear when or if the value style of investing will ever overtake growth as a preferred investment style. Either growth will collapse or value will rally, or something in the middle. For now, all it will take is one good earnings miss of a few large growth names (e.g., Apple?, Amazon?, etc.) to start a bubble pop. Until then, be cautious and balanced with a well-diversified portfolio.