Value Versus Growth
But growth stocks may have become too pricey for investors’ liking, and value stocks are getting too cheap to ignore. The Russell 2000 Value Index is flat so far this year, mirroring the S&P 500, but growth stocks are showing signs of weakness. The Vanguard S&P 500 Growth ETF (VOOG) is down just over 1% – not a large difference but enough to suggest that a shift from growth to value is underway.
Breaking it down further, we find that value stocks in the Russell 1000 Large-Cap Index are down about 0.4%, while growth stocks have fallen 2.2%. Over the past nine years value stocks have trailed growth stocks as the broader indexes have hit new highs, but that could be about to change.
Mutual funds that have underperformed, like American Funds Washington Mutual A (AWSHX) and T. Rowe Price Value (TRVLX), could be good pickups for value-orientated investors. John Linehan, a portfolio manager at T. Rowe Price, says that value stocks generally outperform growth stocks over the long term and right now is a prime opportunity for value investors. He also says that a rising-rate environment is good for value stocks, while stocks with a high P/E, growth stocks, will struggle.
The Bottom Line
Dividend-paying stocks should see outsized gains moving forward, while sectors like technology could be challenging. As oil begins to make a comeback, energy stocks are in value territory and could be worth adding to a portfolio. Overall, value is beginning to outpace growth – a trend that could last for years.