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 sexy companies can generate just as sexy returns.

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The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Registered Office at 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored. 

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