While growth stocks handily outperformed value from 2015 until mid-2020, the two equity styles jostled for position more regularly through the end of 2021—and the value vs. growth debates intensified again.  But in 2022, value stocks, represented here by iShares S&P 500 Value ETF (IVE), have outpaced their growth counterparts (IVW) from the start of the year. 

While both are in the red year-to-date, growth stocks have dropped by 25.4%, more than 20 points worse than value as of writing. The growth-oriented IVW has seen consistently more trading volume than IVE as well.

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The S&P 500 index itself has rebounded from its year-to-date low, a slightly slower recovery compared to value stocks.

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The Long-Term Story of Value vs. Growth

Value and growth have each outperformed the other over certain time periods. In recent years we’ve seen a steep divergence between growth and value, but growth’s steep drawdowns in 2022 have narrowed that gap.

The top half of the chart below shows rolling three-year total returns for the Russell 1000 Growth and Russell 1000 Value indices since the early 1980s, with the two regularly trading the lead. The lower panel illustrates the spread between the two, with a value above zero representing growth outperforming value. Despite 2022 being an especially rough year for growth, its trailing 3-year returns are still 12 percentage points higher than that of value.

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It’s easy to get carried away when one equity class significantly outpaces the other, but when deciding between value and growth investing, it’s important to consider cyclicality, as well as your personal investment objectives and time horizon. To help in your decision-making, we’ve outlined below the most important characteristics of each approach, how value and growth compare in terms of performance, and several ways YCharts helps uncover the best strategy for you and your clients.

 

The Top Growth & Value Stocks

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The Top Growth Stocks table is based on YCharts’ “Trailing Revenue, EPS, and CF Growth”, narrowed to constituents of the S&P 500 Growth index. The result is a list of growth stocks with positive Revenue Growth, Diluted EPS Growth, and Cash from Operations Growth on a quarterly, annual, and 3-year basis. To identify the top 10 growth stocks, a Scoring Model which equally weights all growth metrics was applied.

The Top 10 Growth Stocks as of 12/13/2022 according to this criteria are:

American Express Co (AXP)

ONEOK Inc (OKE)

Apple Inc (AAPL)

SBA Communications Corp (SBAC)

Ulta Beauty Inc (ULTA)

Expeditors International of Washington Inc (EXPD)

Chipotle Mexican Grill Inc (CMG)

Microchip Technology Inc (MCHP)

IQVIA Holdings Inc (IQV)

KLA Corp (KLAC)

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Similarly, the Top Value Stocks table comes directly from YCharts’ “Benjamin Graham Value Stocks” template and uses his principles to dial into the most attractive value stocks. The template filters for stocks with over $500M of annual revenue, current assets above twice their current liabilities, total long-term debt less than current assets minus total liabilities, Diluted EPS 10-Year Growth above 2.9, PE 5 less than 20.0, and a Price-to-Book less than 2.0.

The Top 22 Value Stocks as of 12/13/2022 according to this criteria are:

Alpha & Omega Semiconductor Ltd (AOSL)

Azenta Inc (AZTA)

PC Connection Inc (CNXN)

D.R. Horton Inc (DHI)

Hooker Furnishings Corp (HOFT)

Insteel Industries Inc (IIIN)

IPG Photonics Corp (IPGP)

Johnson Outdoors Inc (JOUT)

Lennar Corp (LEN)

LGI Homes Inc (LGIH)

Allscripts Healthcare Solutions Inc (MDRX)

Marcus & Millichap Inc (MMI)

Perdoceo Education Corp (PRDO)

Resources Connection Inc (RGP)

Safety Insurance Group Inc (SAFT)

Shoe Carnival Inc (SCVL)

SSR Mining Inc (SSRM)

Smith & Wesson Brands Inc (SWBI)

Toll Brothers Inc (TOL)

Unit Corp (UNTC)

Encore Wire Corp (WIRE)

Olympic Steel Inc (ZEUS)

 

The Top Growth & Value ETFs

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The datatable above utilizes YCharts’ “Best Performing Growth ETFs” template, which screens for all ETFs that align with the growth equity style, an expense ratio less than 0.50, and Total NAV Returns category Rank less than 50 for the past 1-year, 3-year, and 5-year period.

The Top 17 Growth ETFs as of 12/13/2022 according to this criteria are:

iShares Core S&P US Growth ETF (IUSG)

iShares S&P 500 Growth ETF (IVW)

iShares Russell 1000 Growth ETF (IWF)

iShares Russell Top 200 Growth ETF (IWY)

JPMorgan US Momentum Factor ETF (JMOM)

SPDR® S&P 1500 Momentum Tilt ETF (MMTM)

Nuveen ESG Large-Cap Growth ETF (NULG)

Direxion NASDAQ-100® Equal Wtd ETF (QQQE)

Invesco S&P 500® Momentum ETF (SPMO)

SPDR® Portfolio S&P 500 Growth ETF (SPYG)

Vanguard Russell 1000 Growth ETF (VONG)

Vanguard S&P 500 Growth ETF (VOOG)

Etho Climate Leadership US ETF (ETHO)

iShares Morningstar Mid-Cap Growth ETF (IMCG)

Alpha Architect US Quantitative Momt ETF (QMOM)

Invesco S&P MidCap Momentum ETF (XMMO)

Invesco S&P SmallCap Momentum ETF (XSMO)

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The ETFs above were identified using the same criteria as noted above but for all ETFs along the value equity style with category rankings below 25 using the “Best Performing Value ETFs” YCharts template.

The Top 7 Value ETFs as of 12/13/2022 according to this criteria are:

VictoryShares US LgCp Hi Div Vol Wtd ETF (CDL)

Columbia US ESG Equity Income ETF (ESGS)

Schwab US Dividend Equity ETF (SCHD)

Pacer US Cash Cows 100 ETF (COWZ)

SPDR® Russell 1000® Yield Focus ETF (ONEY)

Principal Value ETF (PY)

Invesco S&P MidCap 400® Pure Value ETF (RFV)

 

Value and Growth Defined

Value investors try to identify companies with solid fundamentals which they believe are undervalued by the market. Alternatively, growth investors look for companies that demonstrate rapid revenue growth but have yet to reach scale or their full growth potential. It’s difficult to say which approach is superior because market conditions fluctuate, as do sector returns.

Key Characteristics of Value Stocks

Undervalued compared to their peers: Value stocks trade at lower valuations than other companies in their sector or industry. When share prices fall but a company’s underlying fundamentals remain strong, value stocks become “affordable” in the short-term and hopefully lead to long-term gains.

Lower P/E Ratios than the broad market: Even beyond a company’s closest competitors, value stocks are generally lower-priced than the broader market in terms of price-to-earnings (P/E) ratio, especially compared to growth stocks.

Less growth but reliable income streams: Usually larger and more established businesses, earnings of value stocks grow at modest but consistent clips. Because of their sizes, many companies opt to pay significant amounts of earnings directly to shareholders in the form of dividends, rather than reinvest them back into the business.

Less volatile than the broad market: Because value stocks are priced more conservatively, share prices often move less than the market average, and expectations are lower when companies report earnings. But the trade-off to price stability may be a longer holding period until payout, so value stocks are well-suited for long-term investors.

Key Characteristics of Growth Stocks

Track record of earnings and revenue growth: Growth stocks are typically less mature but have grown their revenue and earnings at a better-than-average rate in recent years, and are expected to continue doing so. Often, growth companies will ignore profitability to continue pushing revenue results. Consistently high growth rates for key top and bottom-line metrics justify their relatively higher valuations.

Higher P/E Ratios than the broad market: Because investors expect their earnings to continue growing, growth stocks carry high valuations such as above-average P/E, price-to-book (P/B), and price-to-sales (P/S) ratios. A strong Forward P/E, which considers estimates made by the company and Wall Street analysts, indicates an expectation of continued growth for these companies.

More growth with less reliable return on investment: Growth companies typically opt to reinvest earnings instead of paying dividends to shareholders. This makes an investor’s ROI dependent on the share price increasing, but when a growth stock plows earnings back into the business, it increases the likelihood of capital appreciation.

More volatile than the broad market: Due to their higher valuations, prices of growth stocks tend to be more volatile than the broader market average. When share prices are already lofty, they can plummet quickly if a company misses expectations, or when negative news, like a key employee departure, surfaces.

In addition to value vs. growth, investors also need to consider whether to use stocks or funds to implement these strategies. Mutual funds and ETFs offer broad exposure to value and growth strategies, capturing many companies that fit the bill, but also others that don’t. And stock pickers may be able to identify the single best value or growth company in the market, but also might choose incorrectly.

 

Performance of Value vs Growth Stocks

Investors are curious about which strategy generates more returns. The two strategies historically have had their fair share of ups and downs. As indicated by the returns table below, growth has handily outperformed value over most of the last fifteen years. However, the two equity style categories are nearly split when compared head-to-head since inception.

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Market cyclicality is an important factor to consider when comparing value vs. growth performance. 

Growth stocks generally perform better during bull markets, when interest rates are falling, and when corporate earnings are trending up. However, during economic slowdowns, growth tends to lag behind value. Similarly, value tends to outperform growth during a bear market or economic recession, as well as in the early stages of an economic recovery.

Take for instance the recent spike in long-term treasury bond rates. As interest rates rise and future cash flows are increasingly discounted, investors are likely rotating out of growth stocks and into less risky or speculative assets, such as value stocks and fixed income.

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Company size (given by market capitalization) is also often a contributing factor. When further breaking down value and growth companies by size, such as large, mid, and small market capitalizations, more nuanced performance differences appear. There are over 77,000 funds available in YCharts, including some popular value and growth ETFs with strategies that incorporate market cap:

Large-cap funds:

Invesco Dynamic Large Cap Value ETF (PWV) and Growth ETF (PWB)
Nuveen ESG Large-Cap Value ETF (NULV) and Growth ETF (NULG)
Schwab US Large-Cap Value ETF (SCHV) and Growth ETF (SCHG)

Mid-cap funds:

iShares Morningstar Mid-Cap Value ETF (IWS) and Growth ETF (IWP)
Nuveen ESG Mid-Cap Value ETF (NUMV) and Growth ETF (NUMG)
Vanguard Mid-Cap Value ETF (VOE) and Growth ETF (VOT)

Small-cap funds:

Opus Small Cap Value Plus ETF (OSCV)
Vanguard Small-Cap Value ETF (VBR) and Growth ETF (VBK)

 

Using YCharts to Compare Value and Growth Stocks

YCharts features several tools and data sets to enable more informed comparisons of value vs. growth stocks or value funds vs. growth funds:

Create Value vs. Growth Stock Visuals

The charts above illustrate long-term performance for value and growth strategies, but what about individual stocks and the metrics that define them? Use Fundamental Charts to compare two companies based on underlying metrics that define value and growth opportunities, and over any time period. For example, put the P/E, P/S, and price-to-free cash flow ratios for Alphabet (GOOG) and Procter & Gamble (PG), two common top holdings in growth and value funds, respectively, head-to-head.

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Generate Side-by-Side Comparison Reports 

To compare growth and value funds in a client-friendly format, build a Side-by-Side Comparison report.

The example below pits two growth ETFs, Invesco’s Dynamic Large Cap Growth ETF (PWB) and Nuveen’s ESG Large-Cap Growth ETF (NULG) head-to-head on factors like holdings, performance, risk, and fees. Sending over a comparison report between the two funds can be accomplished in just a few mouse clicks, saving you time while ensuring your client gets the information they need swiftly.

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As you can see, Nuveen’s Growth ETF routed Invesco’s 3-Year and 5-Year total returns all at a lower expense ratio, but recent year-to-date and 1-Year total returns saw PWB outperform NULG. These quick and easy to generate comparison reports, provide a world of value for investors and their clients, ensuring visually appealing and straightforward analysis with an immediate impact.

Screen for Value and Growth Stocks, Funds & ETFs

Whether your mind is already made up on value vs. growth, or you want to dig a little deeper, the YCharts Stock and Fund Screeners narrow in on the best equities and funds for your portfolio. The YCharts Screeners feature several pre-built templates to make finding new investment opportunities even easier.

The Trailing Revenue, EPS, and Cash Flow Growth screen, one of many growth-focused Stock Screener templates, finds stocks with strong revenue growth, earnings-per-share (EPS) growth, and cash from operations growth over several timeframes. Other pre-built templates include the growth-focused Forecasted Growth Screen, and Relative Value Stocks and Dividend Growth Over Time for value-minded investors.

Evaluating value and growth mutual funds and ETFs is a slightly different analysis. With all fund managers trying to pick the best stocks, you can compare and contrast managers’ success by looking at those funds’ performance and risk metrics. Templates like Top Growth Funds and Top Value Funds help identify the best-performing funds of both styles:

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Build Custom Scoring Models for Value and Growth Stocks

Once you have a more manageable list of securities (like the results from a screen above), use Scoring Models to create a custom score or ranking using the metrics you find most important. For example, the Value Score below incorporates relative P/E ratio, relative P/S and dividend per share growth, at varying weights, to compare several value stocks against each other.

Illustrate Risk vs. Reward with Scatter Plot

Looking for a more visual tool to conduct security analysis? Go beyond data tables using Scatter Plot to paint a pros vs. cons picture for a group of securities. The example below shows the risk and reward for the last five years of the top individual Value and Growth holdings:

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Value vs Growth: Which Is Better For You?

Your preference for, or belief in, value vs. growth typically comes down to your investment objectives, risk tolerance, and time horizon. You may also prefer to achieve exposure to growth, value, or both via mutual funds and ETFs, or individual stocks.

Some general rules of thumb: growth may be right for you if you’re comfortable with larger price movements and you don’t need current income (by way of dividends), while you might prefer value if you’re looking for more stable investments that regularly pay dividends.

There’s also a case to be made for including both value and growth in your portfolio to smooth out times of volatility, and still keep pace when the market starts to run. “Blend” funds, created by asset managers, have emerged to achieve “growth at a reasonable price.” This hybrid approach focuses on companies poised for growth but still incorporates traditional value.

 

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