Differences in annual performance of the MSCI AC World Value and World Growth indices
In particular, the 2017 global rally in equities was driven mostly by growth stocks, while value equities under-performed. However, asset managers feel that the situation is bound to reverse again in the near future.
Ernest Yeung, portfolio manager at T Rowe Price told FSA in an earlier interview that value stocks are overdue for a catch-up.
Has the performance of mutual funds that adhere to one of the styles of investing started showing signs of that reversal?
We looked at the universe of equity mutual funds registered for sale in Singapore. In it, we identified 147 unique funds classified by Morningstar as “value” and 172 classified as “growth”.
We zeroed in on five most popular fund categories and looked at their average monthly performance over the past three years.
Difference in monthly returns between value and growth equity mutual funds
(6-month moving average)
Data: Morningstar, 28 February 2018;
Mutual funds registered for sale in Singapore;
Returns in US dollars;
Funds classified as “value” or “growth” by Morningstar
As clearly visible in the chart, value and growth investing styles tend to alternate in outperformance. Growth equity funds outperformed value funds in 2015, but for much of 2016, value did better. The situation reversed again in early 2017 as growth equities drove the market rally.
However, the difference in the relative performance has been narrowing over the past several months and if the trend continues, value stocks will soon indeed come to the fore.
This observation is clearest for European equity funds and emerging markets. Asia-Pacific funds lag behind a few months, but are catching up.
Growth-focused funds continue to outperform in the US equity and global equity categories.