One example might be Microsoft in late 2011, expectations of lower growth caused its shares to trade at a P/E ratio less than half that of Google. And ‘Growth’ versus ‘Value’ might change during the life of a company.
Some investors will include higher earnings variability in their definition of Value, because of the higher earnings variability which may be seen in cyclical Value stocks. Style determinations can become murky when investors have sharply divergent projections for a company’s future, or when companies change over time. ‘Growth’ and ‘Value’ are not black and white.
Value stocks, typically defined as having a lower price in relation to earnings or assets, are defined for the MSCI© Europe Value Index using a factor model of Book Value to Price, forward P/E, and Dividend Yield. 
The MSCI© Europe Growth Index, designed to represent 50% of the market cap of MSCI© Europe, is defined by factor analysis of long-term and short-term forward EPS growth, current growth, and long-term historical EPS and Sales growth
Growth stocks, typically defined as higher earnings growth, usually sell at higher valuations. When analysing the graph, it is useful to consider what constitutes ‘Growth’ or ‘Value’. Oil equities faced large headwinds beyond the weak demand, given production quota disputes. Given the significant demand shock which began in the first quarter of 2020, the more economically- sensitive sectors such as energy and materials have been hard-hit, especially those with the most earnings uncertainty. Growth stocks have clearly been the fun place to be since early 2010s in Europe. The relative performance of the MSCI Value and MSCI Growth indices offer a similar picture. Value has never been this cheap relative to Growth in Europe on our 20-year proprietary models. Past performances of a given financial instrument or index are not reliable indicators of future performancesĬhart 1 reminds us that growth investors can be whipsawed over the short term, especially in recoveries. Value = MSCI© Europe Value Net Return EUR Growth = MSCI© Europe Growth Net Return EUR. Our continuous bottom-up fundamental and valuation analysis highlights Quality opportunities in the Value sector when faced with potential style rotation.Ĭhart 1: European Equities – MSCI© Growth vs Value style relative performance Our dynamic style management allows us the confidence to weather style rotations. Our valuation discipline shows that on an individual basis, many of our Growth holdings have too much valuation downside. Our valuation discipline, our internal model, and simple style performance indices from MSCI© as shown in Figure 1 are aligned. The dramatic recent outperformance in Growth style, especially during the early days of the ‘Covid markets’, creates a risk of a style rotation towards Value later this year, or at least a moderation in the wild ride of Growth.Īt Candriam, our European Equity management processes incorporate a 20-year internal style model to detect, monitor, and manage style biases. Because of this focus on Quality, our portfolios tend to structurally overweight the Growth style. Our European Equity investment style focuses on Quality stocks, ESG, business models, and financial terms. Yet Chart 1 also reminds that value stocks do tend to lead in recoveries, such as the more modest value rotation following the 2008 GFC. We do not expect the next style rotation to offer the type of drama seen in 2000. But it was not a straight line! A history of the relative performance of the two styles since before the dotcom bubble offers a remarkable insight. The Value style has suffered from low and falling interest rates. Since the Global Financial Crisis, Growth equities have significantly outperformed Value equities in Europe.
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