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There is no such thing as value versus growth stocks

Tong Kooi Ong and Asia Analytica
Tong Kooi Ong and Asia Analytica11/25/2021 3:24 PM GMT+08  • 8 min read
There is no such thing as value versus growth stocks
The concept of value investing is applicable to all stocks.
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Value or growth stocks? Analysts are always touting one over the other, against the backdrop of shifting economic and financial conditions. Value stocks are generally favoured when, say, uncertainties/risks are elevated or during recessions, when we are advised to be more defensive.

On the other hand, investors generally pivot to growth stocks, which they expect to outperform, during boom times, bull markets or when interest rates are falling. There are a vast number of funds, both active and passive, that are dedicated to investing primarily in value stocks or growth stocks or some specific mix of the two. Exchange-traded funds track the many underlying indices, focused on either value or growth stocks, created specifically for such purposes.

Over the past decade, however, value stocks have significantly underperformed growth stocks. For instance, the chart shows the ever-widening divergence in returns between component stocks in the Russell 1000 Value Index and Russell 1000 Growth Index. The persistent underperformance has even led some to posit that value investing — the time-honoured strategy embraced by some of the world’s greatest investors the likes of Benjamin Graham and Warren Buffett — is failing. Is it?

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