You are here: Home - Investing - Experienced Investor - News -

BLOG: Is growth or value the best investment strategy?

Written by: Darius McDermott
Which investment style is better: growth or value? It’s an age-old question in the investment world.

For those unfamiliar with the concepts, growth companies are those that have demonstrated better-than-average gains in earnings in recent years and that are expected to continue delivering high levels of profit growth – although this not a guarantee. Investors tend to pay a premium for these stocks – in the hope these companies continue to grow at pace.

By contrast, value investing is an investment strategy that involves picking companies whose shares appear to be trading for less than their actual value. This can be for a number of reasons such as a change in management or a short-term headwind which impacts the sector it operates in. Value investors are essentially looking for bargains – good companies at cheap prices.

Growth stocks tend to thrive in a low interest rate world but also tend to suffer when the global economy begins to slow. By contrast, value stocks often sit in cyclical industries and can do well in an early economic recovery, but struggle when there is a strong bull market.

Growth dominates over a decade

For the past decade, there’s been no debate whatsoever. Value companies have underperformed growth companies on a global scale by almost 150% over the past 10 years*.

With a relatively strong macroeconomic backdrop and unprecedented disruption across industries, growth dominated, with the likes of technology and e-commerce leading the way as people increasingly take their lives online.

The Covid pandemic was a further catalyst for that online move and focus on growth industries.  Technological behemoths like the FAANGs (Facebook, Amazon, Apple, Netflix and Alphabet/Google) rose to record highs. The question became not whether value was out of favour – but whether as a style it had become obsolete.

But things have changed recently, as the past few months have breathed a new lease of life into value investing. The vaccine bounce and a Brexit agreement have resulted in an upturn in performance.

Value rallies have tended to be fast and furious in recent times – it’s been almost a case of blink and you’ll miss it. The trillion-dollar question now is whether the re-opening of the global economy will add further fuel to these value-led sectors? Or, with little or no inflation in the system and the drivers behind the low interest rate, low growth world (which caused the quality growth stocks to outperform) unchanged, will growth continue to dominate?

Don’t try to guess

The truth is no one really knows the answer. Thankfully, there are a number of funds which sit on the fence – giving you the potential for returns in either economic scenario.

Good examples in the income space include Artemis Income and Rathbone Income, and global offerings include Fidelity Global Special Situations and T. Rowe Price Global Focused Growth Equity. Janus Henderson European Focus and Barings Europe Select Trust are other options for those looking for a regional focus.

*Source: FE Analytics, total returns in pounds sterling, MSCI ACWI Growth and MSCI ACWI Value, 15 April 2011 to 14 April 2021

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Darius’s views are his own and do not constitute financial advice.

Darius McDermott is managing director of Chelsea Financial Services and FundCalibre

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Everything you need to know about being furloughed

Few people had heard of ‘furlough’ before March 2020, but the coronavirus pandemic thrust the idea of bein...

The savings accounts paying the most interest

If one of your jobs this month is to get your finances in order, moving your savings to a higher paying deal i...

Coronavirus and your finances: what help can you get in the second lockdown?

News and updates on everything to do with coronavirus and your personal finances.

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Money Tips of the Week

Read previous post:
Percentage symbols tumble around a house
How to get a sub-1% mortgage

Hinckley and Rugby Building Society is set to launch a 0.99% mortgage deal.