Capital Markets: Observations and Insights Autumn 2019

​ Style Divergence

STYLE WARS

Structural Issues Driving Growth vs. Value

• Despite a blip of a reversal in September, Growth stocks have dramatically outperformed Value stocks over the past decade (>35%) • The driver has been the very weak performance of the Price-to-Book valuation metric, 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Style classification too dependent upon outdated book value

100

Low P/B

80

Russell 1000 Value / Growth

60

40

20

Total Return Index

0

2009

2011

2013

2015

2017

2019

Source: FactSet as of 9/30/19. Low price-to-book returns are based on the B/P Northfield factor for the Northfield broad U.S. market database. The performance data quoted represents past performance, which is not an indication or a guarantee of future results.

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