By Tom Burnett CFA
Looking at the price and performance data from the July 14, 2021, pages of the Wall Street Journal and Morningstar, we see the evident improvement in the relative performance of the ‘Value’ stocks compared to the overall market and to the ‘Growth’ universe. We use the Vanguard Value ETF (“VTV”) for the Value names and the Vanguard Growth ETF (“VUG”) for the Growth segment. According to Morningstar, the stocks in the Value ETF carry an average price-earnings ratio of 16.1x, compared to a P-E ratio of 30.9x for the VUG fund. Similarly, the VTV carries a price to book ratio of 2.5x while the VUG trades at a price to book ratio of 7.7x.
The long-term performance record clearly favors the Growth sector. For example, the VUG annual rate of return for the 15-year period is 13.7%, much higher than the VTV return of 8.6%. Looking at the 5-year returns, the VUG shows a rate of 22.9%, well above the 12.6% rate achieved by the VTV fund. The one-year returns, however, show a different story as the VUG return of 41.7% is not much above the 40.8% return for the VTV fund. If we look at the 2021 year-to-date returns, we see that the VTV return of 17.3% exceeds the 16.0% return of the Growth sector. Both the Growth and the Value styles show returns in line with the general market, represented by the S/P 500 Index ETF (“SPY”) which has returned 17.3% this year.
It is too early to declare the Value sector as permanently catching up to the Growth stock segment, but the recent trends point to an adjustment that investors should study to see if the exceptionally positive performance of the Growth is about to moderate and remain nearer to the Value performance going forward.
Tom Burnett CFA is Director of Research