Monday, January 7, 2013

Value Edges Ahead

Here's one way in which 2012 turned out to be different from the years prior: Value stocks outperformed growth stocks. The Russell 3000 Value Index increased by 16 percent on the year, while the Russell 3000 Growth Index returned 14.7 percent. 

That's not a huge difference, but it reverses the pattern of earlier years. Growth stocks had outpaced value stocks each of of the past three years; in 2009, the growth index returned nearly 40 percent, while the value index returned 20 percent. 

Growth stocks, remember, are those that are expected to increase their earnings in future years, while value stocks are those that are considered undervalued by the market. These shifts in returns between the two categories tend to be cyclical, so we could very well see value outperform for a few years now.

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