According to a new analysis from Morningstar Indexes, the valuation spread between growth and value-oriented indexes is near an all-time high, particularly in the US large-cap space, suggesting that value has some upside potential.
The Morningstar Quarterly Style Monitor shows that valuation spreads between growth and value indexes are in the top quartile historically for all global size tiers and regions. Notably, wider valuation spreads have been associated with lower returns for subsequent five-year periods for the more expensive growth style relative to their value counterparts.
Aniket Gor – Lead Quantitative Analyst, Morningstar Indexes, comments:
“While the nature of our research into the potential direction of growth and value index performance is long term and difficult to predict in the near-term, it can be useful for investors to consider the growth-to-value valuation discrepancy in the context of the current market environment. A small handful of US large-cap growth stocks has driven market performance in recent years, but growing uncertainty around policy, interest rates, and geopolitics could be a positive for value-oriented stocks going forward.”
