Value, growth or both?

In recent years there has been a lot of talk about the importance of style in managing equities. Two key styles are value and growth. The reason style matters is that certain economic or market environments favour one style over the other. In the late 1990s equity managers who favoured growth stocks outperformed those who focussed on value. In recent times this trend has reversed violently, having a significant impact on the returns generated by such funds. For example, over the last three years typical global equity funds using a growth style lost an average 20 per cent per annum against value funds, which lost an average 5.6 per cent.

With value now having outperformed growth over the past three years, an obvious question is, will it soon reverse again (with some indications suggesting that this may already be happening). More importantly, it can be demonstrated that the optimal approach is to have a blend balancing both value and growth-style equity managers.

Value and growth defined