Growth vs. Value: Why not both?

In our view, the real question should be ‘all other asset classes vs. equites’

The outperformance of growth stocks over value stocks since the Great Recession1 has been widely discussed, and many investors are questioning if it is now value’s turn to finally re-take leadership. Fuel has been added to this fire with the recent positive news flow for COVID-19 vaccines, which would support the eventual return to normalcy and economic recovery.

We agree that some of the more economically sensitive value stocks should be some of the key beneficiaries during the early stages of an economic recovery, based on what we’ve seen through history. However, we also believe that this is as good an environment as we’ve ever seen for equities in general — one that is favorable for broad participation for both value and growth stocks (Figure 1).

To us, the question isn’t “growth vs. value.” Rather, it’s “all other asset classes vs. equities.” In our opinion, the verdict for equities is quite clear for three reasons:

  1. With positive vaccine news, COVID-19 risks are decreasing, which is supportive for risk assets such as equities.
  2. With the election outcome (largely) settled, election uncertainty risk is now mostly behind us.
  3. The Federal Reserve is the most dovish in history and has noted they will keep that posture for the foreseeable future.

It’s been noted that the current bull market for US equities is the most unloved on record, based on flows into fixed income versus stocks. Why? Many investors never fully recovered from the scars of 2008, and instead of embracing stocks’ structural advantages, they favored fixed income investments and/or hoarded cash. In some cases, investors are accepting negative real returns as an alternative to owning equities. Twelve years into the stock market’s post-2008 recovery, we don’t think it’s too late to participate by owning either growth or value stocks as we prepare to enter 2021.

Figure 1: Both growth and value stocks have performed well in the second half of 2020

Source: FactSet Research Systems. Small-cap growth is represented by the Russell 2000 Growth Index, small-cap value by the Russell 2000 Value Index, mid-cap growth by the Russell Midcap Growth Index, mid-cap value by Russell Midcap Value Index, large-cap growth by the Russell 1000 Growth Index, and large-cap value by the Russell 1000 Value Index. Past performance does not guarantee future results. An investment cannot be made directly into an index.

How we are positioning Invesco Discovery Mid Cap Growth Fund2

Given our view that we are in the early stages of an economic recovery driven by vaccine developments, we have added exposure to some of the more economically sensitive areas of the market. Some examples include semiconductors, machinery, trucking, building products and homebuilding.

However, while we anticipate that growth may lag value for some (likely shorter) time period, we do not believe a regime change has begun with an extended period of value leadership on the horizon. At the end of the day, the secular tailwinds for growth remain intact including the technological transformation across industries, below-trend economic growth, and a Federal Reserve committed to keeping rates near zero. Therefore, our focus remains on companies with the potential to have sustainable, above-average growth rates.

We also believe the mid-cap growth segment of the market is one of the ripest, if not best, areas to find those opportunities, whether it be companies leading the digital revolution, providing innovative therapeutic or diagnostic solutions, or a wide array of other disruptive innovations.

While we can’t predict whether value or growth will lead on any given day and for what length of time, we feel the setup is favorable for both as we look forward to a new year and see few better alternatives.

Learn more about Invesco Discovery Mid Cap Growth Fund.

1 Source: FactSet Research Systems. Based on index performance from Jan. 1, 2009, through Nov. 30, 2020. Annualized returns for the Russell 1000 Growth Index were 18.41%, compared to the Russell 1000 Value Index at 11.39%.

2 Effective Sept. 30, 2020, Invesco Oppenheimer Discovery Mid Cap Growth Fund was renamed Invesco Discovery Mid Cap Growth Fund

Important information

Blog header image: Jimena Roquero / Stocksy

All investing involves risk, including the risk of loss.

In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic and political conditions.

Growth stocks tend to be more sensitive to changes in their earnings and can be more volatile.

A value style of investing is subject to the risk that the valuations never improve or that the returns will trail other styles of investing or the overall stock markets.

Stocks of small and mid-sized companies tend to be more vulnerable to adverse developments, may be more volatile, and may be illiquid or restricted as to resale.

The fund is subject to certain other risks. Please see the current prospectus for more information regarding the risks associated with an investment in the fund.

The Russell 1000® Growth Index is an unmanaged index considered representative of large-cap growth stocks. The Russell 1000 Growth Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.

The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.

The Russell Midcap® Growth Index is an unmanaged index considered representative of mid-cap growth stocks. The Russell Midcap Growth Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.

The Russell Midcap® Value Index is an unmanaged index considered representative of mid-cap value stocks. The Russell Midcap Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.

The Russell 2000® Growth Index is an unmanaged index considered representative of small-cap growth stocks. The Russell 2000 Growth Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.

The Russell 2000® Value Index is an unmanaged index considered representative of small-cap value stocks. The Russell 2000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.

The opinions referenced above are those of the author as of Dec. 9, 2020. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.

Ronald Zibelli is Chief Investment Officer for Growth Equities and Senior Portfolio Manager for both the Invesco Oppenheimer Discovery Small Cap Growth and Invesco Oppenheimer Discovery Mid-Cap Growth strategies.

Mr. Zibelli joined Invesco when the firm combined with OppenheimerFunds in 2019. His tenure at OppenheimerFunds began with taking over the small-cap growth strategy in 2006, and his team expanded its capabilities with the launch of the mid-cap growth strategy in 2010. Prior to joining OppenheimerFunds, Mr. Zibelli was a managing director and the small-cap growth team leader at Merrill Lynch Investment Managers, where he was responsible for managing 11 portfolios, including the firm’s small-cap growth strategy. He began at Merrill Lynch Investment Managers in 2000. Before that, he spent over 11 years at Chase Manhattan Bank. In 1997, he was named portfolio manager for two Chase Vista small-cap strategies and managed both strategies until 1999.

Mr. Zibelli earned a BA degree in finance from Lehigh University. He is a Chartered Financial Analyst® (CFA) charterholder and member of the New York Society of Security Analysts.

Justin Livengood is a Senior Portfolio Manager for the Mid Cap Growth strategy. He also serves as Senior Research Analyst responsible for the health care, real estate, and financial services sectors for small- and mid-cap growth.

Mr. Livengood joined Invesco when the firm combined with OppenheimerFunds in 2019. Before joining OppenheimerFunds in 2006, Mr. Livengood was a vice president and fund analyst with Merrill Lynch Investment Managers, where he specialized in financial services, health care, energy, and basic materials. During his tenure at Merrill Lynch, he also worked as an investment banking analyst in the global media group and as an associate with Merrill Lynch Ventures.

Mr. Livengood earned a BS degree in business administration with a concentration in accounting and finance from Georgetown University and an MBA from Harvard Business School. He is a Chartered Financial Analyst® (CFA) charterholder.

Jason Farrell is a Team Lead and Product Director for the US Core and Small-Mid Growth Equities teams.

Mr. Farrell joined Invesco when the firm combined with OppenheimerFunds in 2019. He joined OppenheimerFunds in 2008 as a product manager. Prior to that, he held positions as an equity research analyst and equity research advisor at Prudential Equity Group. Mr. Farrell has been in the financial services industry since 2006 and has worked in the product management and strategy fields since 2010.

Mr. Farrell earned a BS degree in management from Syracuse University. He is a Chartered Financial Analyst® (CFA) charterholder and holds the Series 7 and 63 registrations.

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