The Track Record
Over any short-term period, either growth or value could come out ahead, but in the long-term, the performance data favours value. Low P/B ratios were first identified as a positive factor in expected returns in Fama and French's 1992 paper, 'The Cross-Section of Expected Stock Returns'. In the U.S., Morningstar's Ibbotson Associates has shown that value stocks have outperformed growth and blend stocks by a wide margin since 1927. Author and hedge fund manager Scott Philips estimates that from 1927 to 2011, value has outperformed growth by about 2.5% annually in the U.S. A 1993 paper from Capual, Rowley, and Sharpe, "International Value and Growth Stock Returns" looked at style performance in six different countries from 1981 to 1992 and found that value outperformed growth in each country on both an absolute and risk-adjusted basis. Meanwhile, our own analysis of European equities displayed similar results.

The MSCI Europe style indices have the longest track record amongst their peer group, dating back to 1974. Over that time span, the value index has outperformed the standard MSCI Europe Index by 0.7% annually, and has bested the growth index by 1.6% per annum. The compounding of this 160 basis point average annual outperformance over time matters: a GBP 100 investment in the growth index would have grown to GBP 3,624 between 1974 and 2011, but the same investment in the value index would have grown to GBP 6,192--a cumulative outperformance of nearly 71%.