Capital Markets: Observations & Insights

​ Performance

Structural Issues Driving Growth vs. Value

• Growth stocks have dramatically outperformed (~30%) Value stocks over the past decade

• The driver has been the very weak performance of the valuation metric Price-to-Book, which is used heavily in index classifications of Growth vs. Value stocks • As accounting fails to keep up with the changing economy, book value may no longer be as relevant (e.g., R&D is not capitalized in book value)

120

Style classification too dependent upon flawed book value

100

80

Low P/B

Russell 1000 Value / Growth

60

40

20

Total Return Index

0

2009

2011

2013

2015

2017

2019

Source: FactSet as of 3/31/19. Low price-to-book returns are based on the B/P Northfield factor for the Northfield broad U.S. market database.

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