By Tom Burnett, CFA
The 2019 year of stock market performance has left us with a definitive answer to the question of which style, growth or value, has performed best in the last decade. We have used the Vanguard Value ETF (VTV) and the Vanguard Growth ETF (VUG) to conduct our analysis. We have also compared the performance of the IVV ETF which mirrors the performance of the general equity market’s S/P 500 Index. We have employed the Yahoo Finance and Morningstar databases from public internet-based platforms to conduct our analysis. All three Vanguard funds have an industry-low expense ration of 0.04% so we have ignored expenses in our analysis. All three ETF’s are widely held—the IVV net assets are $201 billion, the VTV net assets are $91 billion, and the VUG net assets are $101 billion
We have looked at the performance data for the one-year, three-year, five-year and ten-year periods, using compound annual growth rates for each period. The conclusion is obvious—for each of the four periods, Value underperforms the general market and the Growth Index. In each case, the Growth Index outperforms both the Value and the general market indexes. For example, in the one-year category, the VUG return is 37%, well above the VTV return of 25% and the IVV return of 31%. For the ten-year period, Growth retuned 14.6%, above the IVV return of 13.5% and the Value return of 12.5%. Investors are reminded that even a 2.0% compound annual rate of return difference can add up to a big number over a ten-year period. As we all know, the past does not dictate the future, but the evidence from the last ten years provides a clear verdict—growth beats value. One final word is necessary, however, as we looked at the 2008 annual performance during the last major bear market. All three ETF’s performed miserably that year with VUG down 38.2% and VTV down 35.9%. In a true bear market, there is no escape, as growth and value both do poorly.
Tom Burnett, CFA is Director of Research