The recent ups and downs across asset classes of all sorts have steered almost everyone’s attention towards the biggest winners and losers amid all the choppy trading – but few are likely paying attention to which investment style is prevailing through the turmoil: growth or value.
Let’s face it, while “growth” and “value” might not be as sexy as “smart beta” or “currency hedged”, these two investment styles have stood the test of time and are studied by many who wish to identify changes in investors’ preferences.
The question we want to answer here is whether the challenging investment landscape seen over the past year, and recent months especially, has been more forgiving to growth or value investors.
Before we dive into performance comparisons, it’s important to explain our ETF selection process. When it comes to accessing the two most popular investment styles, investors can pick from either growth ETFs or value ETFs within the equity world.
There’s a plethora of each type to choose from and you’re not alone if you find yourself intimidated by the seemingly identical offerings at first glance. It’s worth highlighting that some growth and value ETFs bear perhaps too great a similarity to their parent index; for example, the iShares S&P 500 Growth ETF (IVW ) holds 333 stocks out of the “original” basket of 500.
We’ve delved into this topic before:
The conclusion we’ve come to every time is that the Guggenheim lineup of “pure style” funds warrants a closer look from anyone looking to pursue either a growth or value strategy; simply put, these ETFs have largely beaten their value and growth competitors in the same categories over the long haul.
As such, all comparisons below will be based on the “base” index (S&P 500) versus the pure style growth and value ETF in each market-cap category. All charts are from Barchart.com using one-year trailing returns.
Large-Cap Growth vs. Value
The S&P 500 ETF (SPY ) moved in-line with Growth (RPG ) and Value (RPV ) in the final months of 2014 when the divergence began; growth took the lead in early 2015 and remained the leader through the downturn as well as the rebound.
Mid-Cap Growth vs. Value
The same leadership pattern as seen in the large-cap lineup is apparent in the mid-cap group in recent months; Growth (RFG ) has outperformed both the broad index, the S&P 400 (MDY ) in this case, and Value (RFV ). However, it’s worth noting that the performance gap between growth and the broad index in the case of mid-caps is smaller than that seen in large-caps.
Small-Cap Growth vs. Value
Not surprisingly, small-caps also display a similar performance pattern; Growth (RZG ) trumped the broad index, the S&P 600 (SLY ) in this case, as well as Value (RZV ). The most important takeaway here is that growth small-caps have fared a lot better than their broad-based and value counterparts in 2015, and especially so in recent weeks.
The Bottom Line
If you feel intimidated by the sheer number and variety of ETFs available at your fingertips, don’t feel like you must utilize some of the more niche funds out there; after all, ETFs were designed with simplicity in mind. Sometimes all you might need is a plain-vanilla index fund or a style ETF, be it growth or value-focused, to accomplish your objective.
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