Die große Rotation
‘Growth’ vs. ‘value’ – which is the style of the moment?

The great rotation

Growth stocks have clearly outperformed value stocks since the financial crisis and maintained their lead during the initial turmoil of the coronavirus pandemic. But since November 2020, the tide has been turning. Our analysis provides explanations and assesses potential future trends.

‘Growth’ vs. ‘value’ – which is the style of the moment?

The great rotation: read now

‘Growth’ vs. ‘value’ – which is the style of the moment?

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‘Growth’ versus ‘value’ is one of the classic dichotomies of equity investing. On the one hand, we have aspiring companies with a great vision for the future that achieve high growth rates even in weaker phases of the economic cycle. On the other, we have established companies of solid value that are currently going through a weak patch in terms of profitability but have a good chance of turning things around.

In the first camp, the search is on for the ‘next big thing’ that will merit a high valuation – an approach made popular by pioneers of growth investing such as Phil Fisher and Thomas Rowe Price Jr. The second camp follows Warren Buffett’s principle of investing in under-valued high-quality companies. A look at historical data reveals that there is good money to be made with both investment styles, although growth stocks have had an edge since 2007. But what about the present and the future? The coronavirus crisis is certainly moving the investment parameters.

An analysis of the bare figures for the past twelve months seems to suggest that there is little difference. Both growth and value stocks have generated a total return of almost 40 per cent over this period (MSCI AC World index in US dollars). But a closer look at the performance over time and an expansion of the analytical horizon show that some interesting shifts have been taking place below the surface. It is evident that each investment style has its phase – and in the COVID-19 cycle, things change quickly.

Our analysis specifically addresses the following questions:

  • Which macroeconomic, fiscal and monetary policy trends benefit growth and value investments respectively?
  • What is the short-, medium- and long-term outlook for each of the two investment styles?

  • Which sectors may hold promise going forward?

  • Has the long outperformance streak of growth stocks come to an end?