Growth still reigns over value

Rebecca Hampson

a group of coins in a jar

Growth stocks have soared on the back of a growing economy, but as stock growth and strong returns begin to falter - with the likes of Twitter, Facebook and Netflix earnings missing targets and a few other high growth stocks coming under pressure - the debate over value or growth is mounting.

In recent years growth stocks - companies that are expected to deliver rapid growth in revenue or cash flow - have boomed. In the US, Amazon's share price has risen 92% in the last year while, in the UK, NMC Healthcare is up nearly 70% over the same time period.

As of the end of June, assets invested in growth ETPs globally sits at $205.29m and value ETPs at $198.77m, according to data from ETFGI. The graph below shows the breakdown of assets and number of ETPs available.


Source: ETFGI

Broadening out, growth ETFs have performed much more strongly than value ones. In the past year the Vanguard Growth ETF (VUG) returned 20.4%, while the Vanguard Value ETF (VTV) returned 13.3% over the same time period. (VUG is an ETF slanted towards US growth stocks while VTV is slanted towards US value stocks.)

It's a similar story with UK-listed ETFs that focus on US shares. The Lyxor Russell 1000 Value ETF (RSVL) returned 10.37% in the past year, while the Lyxor Russell 100 Growth ETF (RSGL) returned 25.26% over the same time (see graph below).

chart, line chart, histogram

Source: Bloomberg

However, market watchers are now asking whether investors are overpaying for growth stocks. In a recent piece we asked whether large cap US equities, which have helped boost growth stocks, can continue their run.

Jefferies equity strategist Steven DeSanctis said in a note to clients in July as reported by CNBC that he believes US equities are shifting from growth to value.

"Of the five FAANG stocks that have reported, two have flopped along with a few other high growth/high momentum names and this group is coming under pressure," he said. "We think this presents us with the catalyst to shift toward value and valuations mattering."

Other believe FAANG stocks movement upward is likely to slow.

According to Walter Price, senior portfolio manager at Allianz Global Investors on CNBC, "It's really hard for us to rationalise a stock that's worth $500bn to a trillion going up another 50 or 100%. I think that would be very improbable."

It's a difficult sell though. Even if they do slow, there is a good outlook for growth stocks and their valuations are strong, VUG tracks the CRSP U.S. Large Cap Growth Index. It has a price to earnings (P/E) ratio of 29 and a price to book ratio (P/B) of 6.2 according to By comparison, VTV has a P/E ratio of 20.7 and P/B of 2.3.

A higher P/E may suggest good potential for growth or it may just mean that a stock is overpriced. Similarly, a low P/E may mean a stock has limited prospects for growth or it may mean the stock is too cheap. A low P/B can be considered undervalued and therefore a buying opportunity. A value stock would typically have low P/E and P/B. Growth stocks typically have higher P/E and P/B's.

There is no clear cut argument on value over growth or vice versa. But what does seem to be clear is that neither growth nor value are limited to just large cap stocks and they often dip into the mid cap territory, so it's probably worth having a bit of both.

We list below a number of growth and value ETFs on the London Stock Exchange.












Expense ratio: 0.25%





ETFTER1YR RTNINDEXGROWTHLyxor Russell 1000 Value ETF (RSVL)0.19%10.37%Russell 1000 Value Total ReturnVLyxor Russell 1000 Growth ETF (RSGL)0.19%25.26%Russell 1000 Value Total ReturnGiShares Edge MSCI Europe Value Factor UCITS ETF (IEDL)0.25%-7.16% (3m rtn only)MSCI Europe Enhanced Value IndexViShares Euro Total Market Value Large UCITS ETF EUR Dist0.40%-6.08%EURO STOXX Total Market Value Large IndexViShares Edge MSCI USA Value Factor UCITS ETF (IUVL)0.20%15.87% MSCI USA Enhanced Value IndexVLyxor SG Global Value Beta UCITS ETF (SGVB)0.40%5.20%SG Global Value Beta Net Total Return IndexVSPDR MSCI Europe Small Cap Value Weighted UCITS ETF (EUSV)0.30%1.19%European small cap companies exhibiting low valuation characteristicsVSPDR MSCI Europe Value UCITS ETF (EVAL)0.25%-1.05% European equities with a higher weighting applied to securities exhibiting low valuation characteristicsVSPDR MSCI USA Small Cap Value Weighted UCITS ETF0.30%18.94%US small cap companies exhibiting low valuation characteristicsVSPDR MSCI USA Value UCITS ETF0.25%11.44%US equities with a higher weighting applied to securities exhibiting low valuation characteristicsVUBS ETF-MSCI EMU Value UCITS ETF0.25%-6.61%MSCI EMU Value IndexVUBS Irl ETF Plc - Factor MSCI USA Prime Value UCITS ETF0.25%17.81%MSCI USA Prime Value Total Return NetVUBS Irl ETF plc - MSCI USA Value UCITS ETF0.20%9.96%MSCI USA Value IndexVVanguard Global Value Factor UCITS ETF0.22%10.60%FTSE Developed All Cap Index and the Russell 3000 IndexViShares Edge MSCI World Value Factor UCITS ETF0.30%-6.24% (3m rtn only)MSCI World Enhanced Value IndexVXtrackers MSCI World Value UCITS ETFM'ment fee: 0.15%7.24%MSCI World Enhanced Value Index (Net Total Return)VWisdomTree Global Quality Dividend Growth UCITS ETF0.38%12.08%WisdomTree Global Developed Quality Dividend Growth IndexGWisdomTree Global Quality Dividend Growth UCITS ETF0.38%12.79%WisdomTree Global Developed Quality Dividend Growth IndexGWisdomTree US Quality Dividend Growth UCITS ETF0.33%16.33%WisdomTree US Quality Dividend Growth IndexGWisdomTree US Quality Dividend Growth UCITS ETF0.33%16.23%WisdomTree US Quality Dividend Growth IndexG


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