By Tom Burnett CFA
As part of our ongoing review of market activity, we examine the relative performance of various styles (Growth/Value, Large Cap/Small Cap, Domestic/Foreign) to compare their relative investment records. In this report, we focus on Growth and Value styles. Using data supplied by Morningstar, we track these two styles by following two Vanguard ETF funds with long-term (15-year) track records. The Vanguard Growth ETF (VUG) currently has assets of $50.1 billion. For value, we will examine the Vanguard Value ETF (VTV) which currently has assets of $47.1 billion. As expected, the companies in VUG trade at materially higher multiples of book and earnings than the companies in the VTV fund. For example, the average P/E ratio for the VUG companies is 29.8x, compared to 15.7x for the VTV companies. Similarly, the VUG price to book value ratio is 5.1x compared to 1.8x for the VTV companies. The VUG companies also average earnings per share growth of 12.2%, well above the 6.7% average for the companies in the VTV fund. The VTV fund’s companies do have a higher dividend yield at 3.4% compared to 1.1% for the VUG companies.
The investment performance clearly favors the growth style. Based on closing prices for May 18, 2020, the VUG year-to-date return is 3.1%, compared to a negative return of 17.6% for the VTV fund. Looking at the three-year records, the VUG annual rate of return is 15.8%, compared to 4.1% for VTV. Looking at the 15-year returns, the VUG return is 10.5%, compared to 6.8% for VTV. Over a 15-year period, that 3.7% advantage compounds to a significant 70+% end value total for VUG over VTV. It appears that over both the near term and the long-term periods, the growth style decidedly beats the value style.
Tom Burnett CFA is Director of Research