Value Can Pop Without a Growth Drop

If Eeyore were a value investor, he would probably be among those who feel that a positive value premium can only come at the cost of a growth stock tumble. This view implies value stocks can post strong relative returns only because growth stocks underperformed, not because value delivered strong absolute performance. While growth underperformance was the case during July’s US value premium resurgence, this has not been the norm for the value premium historically.¹

Since 1927, US value stocks outperformed US growth stocks in 58 out of 97 calendar years. During positive value premium years, growth stocks returned an average of 10.25% compared to their average across all years of 11.86%—lower, but not exactly a tank job. Only in 17 out of 58 positive value premium years was growth’s return negative. On the other hand, value’s average return in positive value premium years, 25.08%, markedly exceeded its long-run average return, 15.93%.

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Exhibit 1

Average Annual Returns for US Value and Growth

1927–2023

This article originally appeared in Above the Fray, a weekly newsletter for Dimensional clients. It was not created, written, or produced by TwoTen Planning.

Index Descriptions

Fama/French US Value Research Index: Provided by Fama/French from CRSP securities data. Includes the lower 30% in price-to-book of NYSE securities (plus NYSE American-listed equivalents since July 1962 and Nasdaq equivalents since 1973).

Fama/French US Growth Research Index: Provided by Fama/French from CRSP securities data. Includes the higher 30% in price-to-book of NYSE securities (plus NYSE American-listed equivalents since July 1962 and Nasdaq equivalents since 1973).

Results shown during periods prior to each index’s inception date do not represent actual returns of the respective index. Other periods selected may have different results, including losses. Backtested index performance is hypothetical and is provided for informational purposes only to indicate historical performance had the index been calculated over the relevant time periods. Backtested performance results assume the reinvestment of dividends and capital gains. Profitability is measured as operating income before depreciation and amortization minus interest expense scaled by book. Eugene Fama and Ken French are members of the Board of Directors of the general partner of, and provide consulting services to, Dimensional Fund Advisors LP.

Footnotes

1. The Russell 3000 Growth Index returned –1.27% in July 2024. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Indices are not available for direct investment; therefore their performance does not reflect the expenses associated with the management of an actual portfolio.

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