We have been in a period of historic outperformance of growth versus value. As a result, many investors are wondering whether value is dead and growth will continue to dominate, or if not, when value will start to outperform.
The relative performance differential started to widen about five years ago as secular shifts and innovation provided meaningful tailwinds for companies in more growth-oriented sectors such as information technology while disproportionately negatively affecting those in more value-oriented sectors such as energy, consumer discretionary and financials. These trends have meaningfully accelerated in 2020 with the onset of COVID-19 pandemic, which has resulted in a global recession, declining interest rates and enormous fiscal stimulus. As of October 30th, 2020, we have witnessed the widest magnitude of relative performance between the style benchmarks in more than 40 years (since 1979), surpassing levels reached during the technology bubble boom and bust. While historically the large-cap-style benchmarks have been reasonable proxies for the underlying investment-style performance, today we believe there are a number of factors investors may want to take into consideration when thinking about their investment exposures.
We offer in this piece a holistic view, examining both growth and value from a benchmark and style/factor perspective. We start with a historical perspective of growth and value performance before offering observations on the current environment. From there we take a closer look at benchmarks versus styles/factors, with a discussion on some of the underlying drivers of growth's relative outperformance, which in many cases has been amplified by the pandemic. Finally, we suggest clients consider steering the growth-versus-value discussion away from using the Large Cap US and Global Style benchmarks and toward such factors as the primary metric of growth and value investment performance. We believe that the construction of the large-cap benchmarks and the increased concentration in a handful of names globally leaves the respective growth (and even core) benchmarks with a higher level of risk than many investors realize.
For institutional and investment professional use only. Issued by MFS International (U.K.) Limited ("MIL UK"), a private limited company registered in England and Wales with the company number 03062718, and authorised and regulated in the conduct of investment business by the UK Financial Conduct Authority. MIL UK, an indirect subsidiary of MFS®, has its registered office at One Carter Lane, London, EC4V 5ER and provides products and investment services to institutional investors globally.