Snapshot

The truth about growth and value performance


A statement I have heard many times in recent years, last year especially, is that the “value” style of investing no longer makes sense. That the very idea of buying an unfashionable stock doesn't make sense when the new hottest stock with the most epic growth forecasts is being dangled, tantalisingly, in front of you.

The implication is that, if you want attractive returns, the only place you will get them is in “growth” stocks. Even better, technology stocks.

But this is wrong.

Let’s start with the headlines. In 2020, growth stocks (MSCI USA Growth index) returned 43% in 2020, while value stocks (MSCI USA Value index) returned only 1%. So does this mean value was on a hiding to nothing? Not quite.

The median company in the MSCI USA Growth index only returned 22%, some way short of the index’s performance. This is because the index was dominated by the strong performance of a handful of very large companies. It overstates how well most growth companies performed.

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18% of the companies in the MSCI USA Value index returned more than 22% last year. This doesn’t change the facts that growth clearly outperformed value but it does demonstrate that a reasonable number of value companies also performed very well. Just as all growth companies didn’t do as well as the index would suggest, not all value companies had a bad year.

Some of the better performing US value companies include the chemical manufacturer, Albemarle (+106%), the mining company, Freeport McMoran (+99%), the delivery company, Fedex (+74%), and the agricultural, construction and forestry machinery manufacturer, Deere (+58%).

The roster of top performers is quite likely to be different this year. But anyone who has been sucked into the hype to believe that it is only high growth companies that can offer high returns needs to think again.

The figures are even more striking in other markets. In emerging markets, an impressive 38% of value companies outperformed the median growth company. In the UK, Europe ex UK, and Japan the proportions were 30%, 27% and 24%. Less eye-catching companies can generate just as eye-catching returns.

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