Capital Markets: Observations & Insights

Performance

Structural Issues Driving Growth vs. Value

• Growth stocks have dramatically outperformed Value stocks—35%—over the past decade • The culprit for value investors has been very weak performance in buying low P/B stocks, while P/E strategies have fared much better • Book value may no longer be as relevant given changing business models, e.g., R&D is not capitalized in book value

110

P/E

100

P/B, not P/E, has driven Value underperformance

90

80

P/B Russell 1000 Value / Growth

70

60

40 2017 Total Return Index Source: FactSet as of 9/30/17. Price-to-earnings and price-to-book returns are based on the E/P and B/P Northfield factors for the Northfield broad U.S. market database. 50 2007 2009 2011 2013 2015

Page 16