A Tale of Two Styles: Value vs. Growth

by Connor Darrell, Head of Investments

You often hear the terms “value” and “growth” thrown about when discussions of equity markets are taking place. We thought it might be helpful to discuss some of the differences between the two terms and the trends that have been observed in recent years.

Value and growth are merely two different investing styles that focus on different factors in deciding which stocks to buy. Value investors are typically more focused on stocks that are considered relatively inexpensive in terms of the price of earnings or assets on the company’s balance sheet. Growth investors tend to focus on future earnings growth prospects rather than the price paid for a security and will be willing to pay more for a company that has a perceived advantage in this regard. Often, a stock will not fit perfectly into one category, and will exhibit characteristics of both styles.

Throughout history, the two approaches have gone in and out of favor. Value stocks have outperformed in some periods, and growth stocks have outperformed in others. What is interesting however, is that the divergence between value and growth has seemingly become more pronounced during the course of the current bull market. Since the market bottomed in early 2009, growth stocks (as measured by the Morningstar US Growth Index) have returned an annualized 19.25%, while value stocks (as measured by the Morningstar US Value Index) have returned an annualized 15.99%.  =While this may not seem like a large difference at first glance, over 9+ years, this amounts to approximately $115,340 of additional appreciation on an initial $100,000 investment; a staggering number.

The reasons behind the difference can be explained by the rise of widely held “glamour” stocks in the IT and Consumer Discretionary sectors, which are dominated by social media, search engine, and online retail companies, and are massive components of most growth indices. However, before investors rush to purchase these stocks, we caution that over the long-term the playing field tends to level itself out. Over the last 20 years, the Morningstar US Core Index, which maintains a blended portfolio (containing both value and growth stocks) has outperformed both the value and growth style indexes.

As asset allocators, we can and should use all the data available to us to try and tilt a portfolio toward styles and sectors that are likely to enhance returns, but to jump into one style or sector with both feet can be a perilous proposition. When it comes to investing, a balanced, stable approach tends to win out in the end.

Valley National News

Our team is competing in the Volunteer Challenge for the third year in a row! Our entire staff participates in these projects to assist local non-profits and ultimately support the Volunteer Center of the Lehigh Valley. This year many of our clients and friends in the community assisted with our project by donating to our food drive. We were able to deliver 241 pounds of food. In addition, our team sponsored a monetary donation that will provide 12,000 meals. Last but not least, our staff split up and took the time to volunteer at the Second Harvest warehouse to package food boxes for seniors and food backpack for children. We are looking forward to the final event on Tuesday, May 15 – https://www.volunteerlv.org/volunteer-challenge

Did You Know…?

While you may not have watched all the hours of testimony from Mark Zuckerberg, you have probably heard a bit about Facebook in the news lately regarding data. Did you know that users can download a copy of the personal data that Facebook holds? https://www.facebook.com/help/302796099745838 Users can also access data from Google, LinkedIn and many other web-based communities.

Valley National News

We are hiring Associates through our Entry Level Professional (ELP) Program.

The ELP program, in its sixth year, is designed to immediately integrate talented individuals into Valley National’s expanding “one-stop” financial planning business model through hands-on training, continuing education, and mentorship in the areas of financial planning, tax preparation, and investment management.

Read more about this opportunity at our website, and share the link to the online application page.

Did You Know…?

There is exactly one week left to submit your individual tax returns to the IRS. April 17, 2018 is this year’s official tax deadline – due to the 15th falling on a Sunday and Monday being Emancipation Day – a legal holiday in the District of Columbia.

Emancipation Day is a holiday in Washington DC to mark the anniversary of the signing of the Compensated Emancipation Act, which president Abraham Lincoln signed on April 16, 1862. Local government offices are closed and many public services do not operate. In all other areas of the United States, April 16 is a normal day and public life is not affected.

The Act is different than the Thirteenth Amendment to the United States Constitution, which formally ended slavery in the US. The Amendment was proposed on January 31, 1865, and ratified by 30 of the then 36 states in the same year. However, it was only ratified in Mississippi in 1995.

Valley National News

For your convenience, you can now securely pay your tax preparation bill online! Our team continues to focus on the ease of our clients’ experience through secure and simple options to do business with us. It is as easy as 1, 2, 3 to view your invoice and pay it with a credit card or direct from a bank account via QuickBooks. Our website has a quick reference guide so you know what to expect: http://www.valleynationalgroup.com/webpay

YOU HAVE OPTIONS! We strive to make your financial life as simple as possible. Please use the method of payment that is most convenient for you – online, in person, over the phone, by mail.

Did You Know…?

The Friday before Easter is the only non-federal holiday among the exchange’s nine closed days. The New York Stock Exchange has been closed every Good Friday for more than 150 years, with the exception of 1898, 1906, and 1907.

Why? Several myths surrounding this market closure exist. The stories range of religious agreements, to historically low trade volume, to good old fashioned superstitions about bad luck. Whatever the reasons, the long-standing tradition remains.

The other eight stock market holidays in the U.S. are New Year’s Day, Martin Luther King Jr.’s birthday, Washington’s Birthday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.