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 for July’s US value premium resurgence, this has not been the norm for the value premium historically.
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 of 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%.