Value versus Growth: A Brief Historical View

Value versus Growth: A Brief Historical View

Posted on May 04, 2021
In some of our previous updates, we have discussed how value is now outperforming growth on a relative basis.  Now, we do not want to beat a dead a horse when we talk about this topic, as we have discussed it many times, but over the last 10 years, it has been a very rare occurrence to seen value outperform. 

When we think of growth stocks versus value stocks, there is a definition, which is more related to the underlying companies: value companies typically have low price-to-book values, high dividend yields, and low price-to-earnings ratios; growth companies have just the opposite.  To put it more simplistically, value stocks will mostly consist of financials, healthcare, industrials, energy stocks.  Growth stocks are mostly going to be tech-related: technology, discretionary (which houses Amazon and Tesla), and communication services.

Leadership over the last 6 months
Recently, over the last 6 months, value stocks have been outperforming growth stocks on a relative basis.  The chart below shows, for illustrative purposes, a relative performance chart of growth versus value (orange) as well as value versus growth (blue).  The charts are inverses of each other, telling us the same fact: value is outperforming growth over the last 6 months.

Source: Canterbury Investment Management

Leadership over the last 30 Years
Now, let’s look at a historical perspective.  The chart below shows the same two relative performance charts from 1994-present.

Source: CIM

Here are few key points.  We have arbitrarily highlighted 3 segments of the chart.  The first shows the 2000s Technology Bubble being burst.  Prior to this period, growth stocks (technology stocks) had substantially outperformed value stocks, but when that bubble ultimately burst, growth stocks then severely underperformed.  Heading into the Financial Crisis, value stocks (led by financials) were outperforming, and then have underperformed ever since.  The last highlighted section shows growth stocks again outperforming to a high degree (which is shown by the parabolic slope of the orange line during that period).  As shown in the prior chart, the last 6 months have been led by value stocks, which has not happened much, if at all, for the last 10 years.

Historical Leadership
Now that we have observed the last 30 years of value versus growth, let’s go back even further to 1926.  In a chart produced by Pacer ETF Distributors and presented on an ETF Trends Webcast, the relative performance of value versus growth since 1926 was highlighted. As we said previously, in the last 10 years, the market has been dominated by growth stocks.  Value has underperformed.  Looking at the long-term historical chart below, value has actually had many periods of outperformance. If you were just looking at the last 10 years, or even since 1990, that might surprise some people.  Every dog will have its day, and value has certainly had many good decades.  

Source: Pacer Advisors

Bottom Line
This update isn’t just about growth versus value.  The purpose is to illustrate that all asset classes will have periods of being in favor and out of favor, bull markets or bear markets. There will be periods when growth stocks are less risky than value stocks. There is no law stating that value will always be safer than growth, or that growth will always outperform value.  We have seen growth stocks outpace value dramatically in the last 10 years.  As a result, the technology sector has grown to represent 40% of the S&P 500 market index. The last time this occurred was in 2000, prior to the tech crash.

Investors have favored growth stocks, and growth has carried the markets in the last 10 years.  This market occurrence is not permanent.  For instance, the last 6 months have been led by value stocks.  Today, many investors wonder: “will the next 10 years look similar to the last 10?”

That is why having an Adaptive portfolio is important.  Markets will go through many different environments.  In the last 10 years, we have not seen a true bear market.  The markets have been largely low risk, with the exception of a few trading anomalies.  No one can predict the future.  Right now, the market is low risk and value is leading growth in the interim.  That being said, a bear market will happen.  When it does, it will be critical to have an adaptive approach to navigating it.
Canterbury Investment Management: Tom Hardin

More About Tom Hardin

As Chief Investment Officer, Tom has more than 30 years of experience in the investment management industry and has a broad breadth of knowledge. He is known as an innovator, educator and has been revolutionary in the advancements of portfolio and risk management.

Canterbury Investment Management: Tom Hardin

More About Brandon Bischof

Brandon is directly responsible for managing the Canterbury Analytics Group (CAG). To date, Canterbury Analytics Group has played an important role in advancing portfolio management from a loose art form based on subjectivity and obsolete assumptions to an adaptive process with scientific rules and methods capable of providing evidence based results and statistically relevant value add results.

Every effort was used to provide accurate data and mathematical calculations to provide, what we believe to be, accurate results. Canterbury Investment Management, LLC, and its principal owners, make no guarantee of completeness or accuracy of data or calculations as well as conclusions of any statistical data or information contained in the simulation illustrated on this page. Past results or performance is in no way a guarantee of future results.