The value vs. growth debate

There is a long-running investment industry debate about which investment strategy is better, value stock investing or growth stock investing. “Value” stocks have traditionally been defined as stocks with low valuations (e.g. low price-to-earnings ratios). “Growth” stocks have been defined as companies with above average revenue and earnings growth. According to MSCI, over the last 20 years returns for growth stocks have exceeded returns for value stocks by 2.3x. That is a record performance disparity and it is due primarily to the dramatic outperformance of large cap technology companies. Many Wall Street pundits have been calling for a change in the leadership from growth to value for years, but the probability of that is slim as long as interest rates remain low and global economic growth remains slow. Within that scenario I believe investors will continue to gravitate to companies delivering the best earnings and cash flow growth, which should deliver superior long-term returns. These tend to be growth stocks.