ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Value vs Growth Investing

Updated on January 14, 2015

Choosing A Strategy

One of the oldest debates within the investment community is between the benefits of value investing versus growth investing. Numerous arguments have been made in favor of both approaches at various different times. A basic understanding of the two approaches must first be gained to evaluate ones point of view.

Value Investing is based on the evaluation of securities which are trading at relatively low prices in relation to their earnings as well as other fundamental analysis. Value stocks produces returns that most often compromise both capital appreciation as well as dividends. These tend to be more established entities in comparison to their growth based counterparts.

Growth Investing targets securities which are expected to have faster rates of growth in the future when compared to the broad market indices. Growth stocks produce returns that are more dependent on capital appreciation with less, and in some cases no dividend income. They are often more speculative in nature than their value oriented counterparts.

Value oriented securities are often viewed as more dependable because of the more consistent cash flow from dividends. However, in certain market environments they can be more volatile. As one such example, much of the large cap value sector is heavily weighted towards financials which can be a detractor in certain market environments. The S&P 500 value index is currently made up of a 25% exposure to the financial sector. In contrast the S&P 500 growth index is comprised of less than 10% financial sector exposure. During environments which may produce greater stress on financials, large cap value investing may be a more challenging task.

Ultimately, there have historically been various periods which have favored both value and growth investing over the short term business cycle. Yet, the timing of shorter term market movements has been shown to be an exercise in futility for the average investor, and very often for investment professionals. So then the real question becomes whether or not there is a clear winner over the longer term performance trend.

The recent trend over the last decade has shown little evidence that either value or growth has been the dominant performer. The recent 10 year performance of Large Cap equities has given a slight edge to growth over value, with each having their years of outperformance. During the 10 year period ending December 2014…The S&P 500 Value Index posted returns of 6.74%. While the S&P 500 Growth Index posted returns of 8.55%. Yet, when looking a risk adjusted returns…The S&P 500 blended index seems to produce the best results. A similar result is seen when looking at the S&P 400 Mid Cap Value Index which produced returns of 9.33% versus the S&P 400 Mid Cap Growth Index which returned 10.03%. The story is also a familiar one when looking at small cap equities, with the S&P Small Cap Value 600 Index posting an 8.56% return. By comparison the S&P Small Cap Growth 600 Index posted a 10 year return of 9.47%.

A longer term look over the course of multiple decades has shown results that differ from the recent trend, favoring value oriented securities. The academic work of recent Nobel Laureate Eugene Fama and Kenneth French in their Fama/French Three Factor Model has shown that value securities clearly outperform growth securities when given enough time. However, since there are extended periods of time in which this trend can and has been attempt to isolate a portfolio towards value or growth oriented securities can produce lower portfolio returns. Furthermore, this is in itself an attempt at timing market cycles, which has been historically difficult…if not impossible.

When looking at portfolio construction for the average investor, any bias in either direction should remain nominally tilted towards an increased weighting in one direction or the other. Often times the quest for cash flow resulting from dividends may drive an investor to heavily favor value over growth. However, as the last decade has demonstrated…this would have produced a lower cumulative return across US equities.

Investors focused on cash flow for the purpose of providing for and/or supplementing their lifestyle should be first concerned with aggregate returns. This is done most effectively by drawing cash flow proportionately from an overall strategic asset allocation that encompasses all asset classes…and not simply focused on exclusively dividend income. Dividends and value oriented securities are a fundamental part of proper portfolio construction. However, purchasing a security solely based on its dividend income is not a wise strategy. Dividends are not always a proper representation of the free cash flow or the fiscal condition of an organization or even a sector of the market. Dividends distributions change, as does the economic cycles we must endure as investors. It is inevitable that we’ll face periods such as the recent decade in which less income oriented growth securities will outperform their value counterparts. Staying properly invested in a blended allocation provides an investor the best risk adjusted probability of keeping pace with the markets and achieving their investment objectives.


    0 of 8192 characters used
    Post Comment

    No comments yet.


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: ""

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)