If value investing works so well over the long term, why has the performance of value shares been so dismal over the past five years? In this paper, we look at the historical relationship between and value and growth shares and the implications for the current stockpicking environment.
• On average, value shares have outperformed growth shares over long periods.
• Growth shares typically offer better fundamentals, but often fail to live up to the high expectations built into their valuations.
• In recent years growth has outperformed for a number of reasons, one being quantitative easing, which has compressed discount rates, disproportionally benefitting growth shares.
• We can’t predict when this will change, but value shares as a group currently look better than average.