Chart of the Week: Value-Growth Divergence

Chart Value Growth Divergence
The chart above shows the proportion of time that returns of value stocks have exceeded those of growth stocks in rolling 1, 5, and 10-year periods going back to 1926. In all the intervals listed, value has beaten growth most of the time. However, as of late, growth has got the better of value, outperforming by at least 3% a year 7 out of the last 10 years (Dimensional Funds). Because investors tend to extrapolate past returns into the future, more money has flowed into growth stocks driven by expectations for further outperformance. However, given that value stocks have outperformed growth stocks during 84% of ten-year periods since 1926, it is probably not wise to expect this string of outperformance from growth stocks to continue for too long. At some point, probably sooner rather than later, there will be a reversion back to the mean. It is hard to say when exactly the mean reversion will occur, but the next economic downturn could provide the catalyst for a return to a more historically typical value-growth return relationship.


All indices are managed, and investors cannot actually invest directly into an index. Unlike investments, indices do not incur management fees, charges or expenses. Past performance does not guarantee future results.