Value vs. Glamour: A Study Of The Indices
Brandes Institute
Brandes Investment Partners
February 1, 2013
Brandes Institute Research Paper No. 2013-01
Abstract:
Value indices have outperformed growth indices: Over the long term; Across both large and small cap; In the United States, non U.S. markets and developing countries.
Value vs. Glamour: A Study Of The Indices – Introduction
By examining returns for U.S. stocks from 1968-2012 and stocks outside of the United States from 1980-2012, the Brandes Institute’s Value vs. Glamour: A Global Phenomenon study reveals a consistent value premium across valuation metrics, geography and market capitalizations.
But what about commonly used benchmarks? Would a comparison between Value and Growth indices yield similar results?
The United States
Using the Russell 1000 Value Index as a proxy for U.S. large-cap value stocks and the Russell 1000 Growth Index as a surrogate for U.S. large-cap growth stocks, Exhibit 1 compares both annualized returns and an average of rolling 5-year periods since the indices’ inception in 1979. The results show clear evidence of a value premium, with annualized outperformance of 1.42% and 1.70% over rolling 5-year periods.
The results are more striking when looking at small-cap stocks, with small-cap value outperforming growth by an annualized 3.99% and 4.94% on a rolling 5-year basis. The U.S. small-cap value index also beat the growth index with greater frequency. During the 34-year study, the Russell 2000 Value Index topped the Russell 2000 Growth Index 21 years, or 62% of the time.
International
Similarly compelling results were uncovered in a study of non-U.S. indices since their inception. On an annual basis, our study found the MSCI Europe, Australasia, Far East (EAFE) Value Index outperformed the MSCI EAFE Growth Index during 27 of the 38 years studied, or 71% of the period under review. In addition to this persistent outperformance, value stocks averaged a 3.41% performance premium annually over their growth counterparts. Examining performance on a rolling 5-year basis, the value component of the MSCI EAFE Index outperformed the growth component in 25 of the 30 rolling periods, or 83% of the time.
To investigate results among large- and small-cap non-U.S. stocks, we compared the S&P Developed Ex-U.S. Large-MidCap and SmallCap Value and Growth Indices. Again, the results (see Exhibit 2) show convincing evidence of a value premium across both large- and small-cap non-U.S. stocks.
Emerging Markets
Although annual performance data for the MSCI Emerging Markets (EM) Growth and Value Indices only became available beginning in 1997, there is strong evidence of a value premium in emerging markets—with value stocks delivering an outperformance advantage versus growth stocks of 1.96 % on an annualized basis. Exhibit 3 on the following page shows how such outperformance, even over this short investment time horizon, can make a significant impact on returns.
Value Outperforms Growth Across Indices
Despite recent short-term underperformance for value stocks, a value premium remains evident when looking at common benchmarks over the long term. Exhibit 4 shows value indices have consistently outperformed their growth counterparts, for both large- and small-cap stocks around the globe.
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