Key Points

  • It’s important to differentiate between the factors of growth and value and the index constituents of Growth and Value; i.e., lowercase g and v vs. uppercase G and V.

  • Investors can often find value within Growth indexes; while value traps can sometimes be found within Value indexes.

  • Since the market’s pandemic low a year ago, performance among styles can be broken into two key phases; the second kicking in on September 2, 2020.

I am often asked by investors why we do not have formal tactical views on growth vs. value like we do on large caps vs. small caps. The reason can be summed up by noting that there is a difference between the factors or characteristics of growth vs. value and the index constituents of growth vs. value. I often put it another way: there is a difference between growth and value (lower case g and v) and Growth and Value (upper case G and V). Let’s take a closer look.

Given the heightened focus on, and interest in, passive (or index) investing, discussing growth and value tends to lean toward the Growth and Value indexes vs. the factors of growth and value. Both S&P and Russell have Growth and Value Indexes; with Russell further breaking them into large cap (Russell 1000 Growth and Russell 1000 Value) and small cap (Russell 2000 Growth and Russell 2000 Value). Most institutional style-oriented products are benchmarked to the Russell style indexes; as such, they are generally considered the “industry standard.”

Below is a visual representation of the sector components of each of the aforementioned style indexes. For the benefit of apples-to-apples comparisons—and because S&P’s sectors are so well-known—we used S&P’s sector classifications and then applied them to the Russell indexes (which uses different segmentations across industries/sectors). I will refer to these pies throughout this report.

Source: Charles Schwab, Bloomberg, iShares. S&P weights are as of 3/19/2021 and Russell weights are as of 3/18/2021.

Rebalancing methodologies

Russell rebalances its style indexes in late-June every year. The company use three parameters to classify stocks into its four style indexes: price-to-book ratios, five-year sales growth, and forward earnings estimates. There can be overlap among Russell’s four main style indexes; although the company also has “pure” growth and value index versions.