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Growth vs. Value Stocks

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  • Growth vs. Value Stocks

    Hi all,

    I've been reading a bit about growth vs. value stocks and was wondering if the differences could be clarified for me, and how one thinks about this when planning their asset allocation.

    I started looking into this since reading this months WCI Newsletter, which showed the following:

















    US Small Value Stocks VSIAX 0.47% 11.80% 11.80%
    US Small Growth Stocks VSGAX 0.27% 21.92% 21.92%

    I was struck to see such a large difference in these two small-cap funds, and I was also curious which fund I was using in my own portfolio to fill the "small-cap" portion of my asset allocation. It turns out I have been investing in VSMAX (Small-Cap Index -- which is defined as "Small-Cap Blend"). I take it that VSMAX has some value and some growth stocks and not surprisingly, last years return of 16.24% seems to be right in between the two funds listed above.

    Am I correct that my current fund (VSMAX) has both growth and value stocks and so I am already diversifying between these two categories of stock?

    I have no plans to make changes to my asset allocation until I learn more and am convinced it should be different.

     

    Cheers!

  • #2




    Am I correct that my current fund (VSMAX) has both growth and value stocks and so I am already diversifying between these two categories of stock?
    Click to expand...


    Yes, it appears so. A quick check of the fund on Vanguard's website shows that it is "small/blended" on the 3X3 grid of "stock style" in the fund. Also, VSMAX tracks the US Small Cap Index.

    Comment


    • #3
      Historically, value outpaces growth and small value is the Morningstar box with the highest returns. That does not mean that it will outperform every year, but over rolling 20 year periods or such, it has been the case. Going forward perhaps there is something structural in the equity markets that has changed (who knows?), and maybe this will not be the case.

      Intellectually, I understand the “small value” argument and have been tilting toward small value for at least a dozen years. It is a strategy that you have to commit to for multiple market cycles to see the outperformance benefit.

      Since you already have the small cap index, it is reasonable to continue to invest in this vehicle in order to capture any premium associated with small cap stocks.

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      • #4
        Listen to the Podcast Paul Merriman did last week on 2017 returns.  Some years you'll do better with small cap value, other years not so much.  The real concern you should have is the long-term geometric return, or compounded annual return, after expenses.  I have a slight tilt towards small cap value but realize it'll take years for any potential benefits to be realized.

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        • #5
          Agree with above comments.  My position in small cap value is greater than small cap growth due to above facts.

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