Investment style is a subject that tends to polarize investor opinion - there are growth investors and there are value investors, and, for some, the divide shall not be breached. Proponents on each side of the fence argue passionately about the respective merits of their approach. Yet, it is very difficult to say with any certainty whether one is more successful than the other. Different market and economic environments will periodically favor one style or the other. Which begs the question - is a more flexible approach, combining both growth and value investments, the best way forward?
What does history tell us?
Certainly, over longer timeframes, history shows that value investors have achieved superior returns to growth investors, and with lower level of overall risk1. However, this knowledge would not have been helpful for investors over the past decade, for example, as growth oriented investing has outperformed value substantially2.
Analysis of historical data also highlights the fact that there is no discernible relationship between the returns from growth investing and those from value investing, from one year to the next. Each style has characteristics that may help it perform better or worse in different market environments. This suggests that both value and growth investments can be important components of a diversified portfolio, with the potential to provide a smoother combined portfolio return over time.
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