Chart of the week: Should you jump aboard the value train?
We’ll watch it trundle on
The S&P 500 Value Index returned more than 11% over the three months to November’s end — well ahead of the 6% of its ‘growth’ sister index. There will be periods when the share prices of these sorts of businesses, which do better when economic activity picks up, will outperform, but we feel like they will be few and fleeting. For investors who resisted the urge to chase them, this has certainly paid off in the past. In the three years to 30 November, US ‘growth’ companies made 65%, outstripping ‘value’ ones by 27 percentage points. In a world of limited economic growth — a situation we believe will endure — it seems misguided to rely on accelerating economies to increase the overall pool of earnings. And, therefore, it seems misguided to buy ‘value’ companies that need reaccelerating growth to really outperform. Instead, we believe it’s prudent to stick with ‘growth’ companies that are doing business better than their rivals and taking in more earnings at the expense of competitors who just can’t keep up. Read more about the potential value in growth in ‘Winner takes all’, an article in our latest Investment Insights.