Growth vs Value Funds | Index One

In this edition of Index One Insights by Index One , we delve into the differences between growth and value funds and discuss how incorporating both can help diversify your portfolio.

Also in this edition:

?? WEBINAR: Building an Alpha-Seeking Portfolio: Asset Allocation & Risk Management

?? POLL: What alternative to the 60/40 strategy do you consider most appealing?

?? Brompton Index One International Cash Flow Kings Act as Benchmarks for the Brompton International Cash Flow Kings ETF (KNGX)

?? phaseinvest US indexes

?? Index Spotlight

?? Subscribe to our bi-weekly newsletter to stay updated with current news in the index industry, insightful articles and new Index One features.

To receive our newsletters via email, sign up here.

Introduction

Growth and value investing are two popular strategies for diversifying a portfolio. Growth investors focus on companies with strong and consistent profit growth, while value investors seek out companies that appear undervalued. These two styles can complement each other, making it essential to understand their distinctions before applying them to a portfolio.

Definition of Growth Funds

Growth funds invest in companies that demonstrate above-average gains and rapid earnings growth. These companies are expected to continue growing, which often leads to higher stock prices and elevated price-to-earnings (P/E) ratios. A well-known example of a growth company is Google (GOOG), which has consistently increased its revenues since its initial public offering (IPO).

Advantages of Growth Funds

• Higher-priced stocks than the broader market: Growth investors are willing to pay high P/E multiples, anticipating even higher prices as these companies expand.
• Strong earnings growth: Growth companies may sustain high earnings growth even during economic slowdowns or periods of falling interest rates, as lower rates make it easier for these companies to access capital for expansion.
• Performance in late-stage bull markets: Growth stocks typically outperform in the later stages of a bull market.

READ MORE: Is Index Blending Right for Your Portfolio? | Index One

Definition of Value Funds

Value funds consist of companies perceived as undervalued by the market but with promising fundamentals. Value stocks appeal to long-term investors because they often experience a slower turnaround. Investors in value funds believe that once the market recognizes the true value of these stocks, their share prices will increase, benefiting those who invested early. An example of a value company is T-Mobile US (TMUS).

Advantages of Value Funds

• Lower-priced than the broader market: Value stocks are priced below similar companies, as investors expect them to rebound once their true value is recognized.
• Lower risk than growth stocks: Although value stocks may take time to recover, they typically carry less risk of price fluctuation and are more suitable for long-term investors.
• Performance during rising inflation: Value stocks generally outperform growth stocks during periods of rising inflation. Higher inflation leads to higher interest rates, which can diminish the value of future growth.

Differences between Growth vs. Value Funds

Investors can benefit from including both growth and value companies in their portfolios, but understanding their differences is key:

• Market conditions: Growth stocks tend to outperform when interest rates are falling, while value stocks usually outperform during periods of rising inflation and economic recovery.
• Risk & volatility: Growth stocks tend to be more volatile and carry higher risk, as their prices can drop sharply on negative news. Value stocks may involve less risk but often require patience as they take time to recover.
• Performance during economic phases: Growth stocks typically thrive in late-stage bull markets, whereas value stocks tend to do better in the early stages of economic recovery or during inflationary periods.

WEBINAR: Building an Alpha-Seeking Portfolio: Asset Allocation & Risk Management

Join Index One for an insightful webinar with BX Index, Artha (Global Beta Advisors), Libra Investment Services / Apollo?, and Trendrating as we explore:

?? Ways we find alpha

?? The impact of market conditions on alpha strategies

?? The power of trend capture strategies

?? Creating your own alpha-seeking asset allocation strategy

Register Now

Speakers:

?? Alexander Berg, Founder and CEO (Index One)

?? Justin Lowry, President & Chief Investment Officer (Artha)

?? Chris Tinker, Founding Partner (Libra)

?? John Coulter, Managing Director, North America (Trendrating)

?? Christopher McHeffey, President (BX)

Register Now

Can’t make it? Register anyway to receive the recording after the webinar.

We look forward to your participation!

POLL: What alternative to the 60/40 strategy do you consider most appealing?

According to VettaFi (VettaFi ETF Database), the four sectors with the highest AUM in US-listed ETFs are Technology, Healthcare, Energy, and Financials. Which sector would you like to see more ETFs in?

Vote now

Brompton Index One International Cash Flow Kings Act as Benchmarks for the Brompton International Cash Flow Kings ETF (KNGX)

The Brompton Index One International Cash Flow Kings index is designed to track the performance of companies exhibiting superior Free Cash Flow Yield (free cash flow / enterprise value) relative to their peers in the International market. The index coverage is based on a number of size, liquidity, and other eligibility factors to ensure that the index is investable.

Read more

View index

View KNGX

phaseinvest US indexes

Phaseinvest provides an engine that dispenses inbuilt biases in order to efficiently harvest the targeted equity risk premia. Using Index One’s flexible indexing solution, Phaseinvest built a US index series that offers a set of indexes that efficiently extract the targeted factor risk premia using proprietary data analytics.

The phaseinvest US-MOM50 holds securities with the best risk-adjusted momentum attribute in large cap US equities as identified by its proprietary regime identification model.

The phaseinvest US-VOL50 holds securities with the lowest volatility attribute in large cap US equities as identified by its proprietary regime identification model.

View phaseinvest indices

Index Spotlight

Popular indices calculated by Index One. As of 22nd August 2024.

View all indices

It all starts with a backtest. Build your custom index strategy in minutes with Index One.?Find out how.

Learn more