What Does Historical Data Reveal About the Performance of Value Stocks Compared to Growth Stocks? (2024)

FAQs

What Does Historical Data Reveal About the Performance of Value Stocks Compared to Growth Stocks? ›

Historically, it takes about ten years for earnings to double, while value stocks can gain about 50% over the same period. Over the past ten years the MSCI World

For example, in years when value outperformed growth, the average premium was nearly 15%. On average, value stocks have outperformed growth stocks by 4.4% annually in the US since 1927, as Exhibit 1 shows.

Growth and value are two fundamental approaches, or styles, in stock and stock mutual fund investing. Growth investors seek companies that offer strong earnings growth while value investors seek stocks that appear to be undervalued in the marketplace.

For example, value stocks tend to outperform during bear markets and economic recessions, while growth stocks tend to excel during bull markets or periods of economic expansion. This factor should, therefore, be taken into account by shorter-term investors or those seeking to time the markets.

Value stocks often achieve lower price gains because their medium- to long-term growth potential often turns out to be lower. A potential lack of growth may lead to a lower valuation of the stock in the long run, or investors may have to wait longer for the expected price appreciation.

Value stocks are mainly found in the financial, healthcare, industrial and energy sectors. Growth stocks are mainly found in the technology, consumer discretionary and communication services sectors. Growth stocks typically grow significantly faster than their counterparts in terms of sales and, above all, profits.

The index has returned a historic annualized average return of around 10.26% since its 1957 inception through the end of 2023.

With a value approach, you look at steadier cash flows and improving profitability, or stocks that have fallen out of favour with the market for whatever reason. With a growth approach, you apply your creativity industry-specific knowledge to imagine where a stock might end up.

Value stocks are expected to gain value eventually when the market corrects their prices. In the unlikely event that the stock doesn't appreciate in value as was expected, investors can lose their money. Hence, value stocks are relatively riskier investments.

For the value index, the median ROIC, averaged over three years, and excluding goodwill, is only 15 percent, compared with 35 percent for the growth index (Exhibit 2). In other words, the average growth stock is likely to deliver twice the average value stock's book return on capital.

Will value stocks outperform in 2024? ›

We expect lackluster global earnings growth with downside for equities from current levels.” Against this backdrop, value stocks have a strong chance of outperforming their growth counterparts in 2024.

Investors loosely define value stocks as well-established companies with steady profits that are trading at a discount to what they're intrinsically worth. They tend to have reliable, sustainable business models and often pay dividends because of their regular cash flows.

Looking back at the recessions of 1980, 1982, 1991, 2001, and 2009, we find growth tends to outperform value in the 12 months prior to a recession through to the trough of the recession. As the economy exits a recession, value tends to outperform growth.

On average, value stocks have outperformed growth stocks by 4.4% annually in the US since 1927, as you'll see on this chart. Also, historical data strongly favors value stocks in the US, known for their lower relative prices and higher expected returns over the past century.

Certainly, there is usually a positive correlation between the two. Slow-growth companies often sell at low valuations and high-growth companies often sell at expensive valuations. In an attempt to simplify, the two continuums are often merged into one, with value at one end and growth at the other.

And four more market trends from Q1 2024. The first quarter of 2024 was not short on storylines. Stocks rallied against the backdrop of interest-rate cut expectations, artificial intelligence optimism, and a resilient US economy.

Value stocks are flat so far in 2024, while growth stocks have fallen 1.8%. Here's what investors need to know about what's ahead for this less-than-flashy corner of the market.

What is the historical performance of stocks versus real estate? Over the past 50 years, stocks have generally generated higher returns than real estate. If you had invested $33,500 into the S&P 500 in 1973, it would now be worth around $5.1 million, with an annual return of 10.59%.

Understanding High Minus Low (HML)

Specifically, value stocks have historically outperformed growth stocks on average, while smaller companies have outperformed larger ones.