Value Stocks vs. Growth Stocks

Last year Jim conducted a series of interviews for Real Vision titled Real Visionaries. Below is an excerpt of an interview with Rob Arnott of Research Affiliates.

Rob, sometimes known as the “Godfather of Smart Beta,” explains how value has underperformed growth over the past 15 years.

In January value had a tremendous month relative to growth.

As the chart below shows, the S&P 500 Value Index beat the S&P 500 Growth Index by 6.75% for its widest outperformance since 2000.

Likewise, the Russell 3000 Value Index outperformed the Russell 3000 Growth Index by 6.31% in January, marking value’s best monthly outperformance since March 2001.

Widening scope even further, the MSCI World Value Index beat the MSCI World Growth Index by 8.05%, its largest monthly outperformance since February 2001 and its third-best month in nearly 50 years of data.

The natural response is to look for mean reversion. But as the next set of charts shows, value stocks have underperformed growth stocks since May 2007. Value stocks have only outperformed since the end of November.

Starting with the S&P 500, value’s underperformance to growth bottomed in November and has a long way to go to meaningfully retrace growth’s outperformance over the last 15 years.

Widening scope to the Russell 3000 Value and Growth indices shows a similar pattern.

Looking globally, the MSCI World Value Index only began outperforming the MSCI World Growth Index in late November.

Conclusion

Value had a great month or two relative to growth. In the short-term some sort of mean reversal would not be a surprise. However, long-term value has barely begun its retracement of growth’s outperformance of the past 15 years.