Wednesday, September 06, 2006

Value vs Growth Investing

We are seeing a number of institutional converts to value investing based on its "long term value premium". Of course, it is always easy to adopt a long run theory when short term performance makes it attractive. Nevertheless, a recent article in Plansponsor points out some interestng statistics re: growth style investing.
  • Value investing empirically has generated higher long term returns despite growth outperformance in over half of the last 110 quarters,

  • Growth investing is more volatile, the negative effects of which outweight its outperformance frequency,

  • As we confirmed in our study on active manager alpha, median growth managers exhibit higher historical alpha,

  • INTECH,Transamerica Investment Management; Sands Capital Management; Wedgewood Partners; and TCW Asset Management. RCM Capital Management were mentioned as top institutional growth managers.

A very rational portfolio investment structure that would take advantage of these characteristics would be to overweight value beta(index) and underweight growth, but actively manage that mandate. This strategy makes particular sense as some of the best value managers have closed to new money.

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