Growth Vs Value Cycle


Investment decisions need to be based on rational analysis and void of behavioral bias. However, markets often act without clinical analysis and prefer different type of assets in different phases. One such example is emerging across the growth stocks and value stocks, where the favor or disfavor for a particular class changes over the course of a market cycle.

For the purpose of this analysis we have picked Russell 1000 Growth Index representing mid-large cap U.S. companies and Russell 1000 Value Index focuses on mid-large cap U.S. companies.

Russell 1000 Growth Index represents mid-large cap US companies growing earnings at above the general market growth rate.  While Russell 1000 Value Index focuses on mid-large cap US companies quoting at relatively cheap valuation level by Price to Book (as seen in the table below).

Details of Composition (Sep 2015)
Russell 1000 Growth ETF (IWG) Russell 1000 Value ETF (IWD)
Net Assets $27.8 bn $23.5 bn
P/E 22.7x 15x
P/BV 5.4x 1.67x
Top Holdings Apple, Microsoft, Amazon,Facebook, Google, Disney, Verizon, Coca-Cola, Home Depot Exxon, GE, Wells Fargo, Berkshire, JPM, JNJ, Pfizer, AT&T,Bank of America
Source: ETF Factsheet


When one compares Russell 1000 index’s 7 year CAGR and 3 Year CAGR, tracking the spread between Growth minus Value index, it is seen that returns are above the mean (see Chart 1 and Chart 2).  Hence, clearly indicating that Growth is outperforming Value.

Source: Weekly data from Factset since 1991.

Market preference for growth and value stocks has historically been cyclical. Since the Global Financial crisis, one has witnessed an increasing preference for Growth category and its outperformance relative to Value.

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