Can the turn to value from growth truly be trusted? Or is it just another head fake for advisors with a bent for cheaper stocks?
The iShares Russell 1000 Growth ETF (Ticker: IWF) is down 2.5% in 2026 and up 6% in the past 6 months. Meanwhile, the iShares Russell 1000 Value ETF (Ticker: IWD) is up 4% YTD in 2026 and 11% in the past 6 months.
Nevertheless, while value investors may be relishing their recent hot streak, they may not want to crow too loudly based on longer term performance. Over the past five years the growth-focused IWF is up 90% compared to a 60% return in the value-based IWD.
Eric Starkey, wealth advisor and investment analyst at Tova Wealth, a Sanctuary Wealth partner firm, points out that several tailwinds are supporting value stocks, including cheaper valuations relative to growth, pockets of strong earnings growth, and stable cash flows. A rotation out of frothy AI and mega-cap growth stocks has also benefited value, as well as interest rate cuts and expectations for lower rates ahead, according to Starkey.
“We may see continued relative outperformance in certain areas of value, such as financials and industrials, which offer stable earnings growth and strong free cash flow. Periods of value outperformance underscore the importance of maintaining a diversified portfolio, though we remain most excited about the long-term potential of AI,” Starkey said.
In terms of his portfolio management going forward, Starkey says he always maintains a diversified portfolio, but he has been more heavily tilted toward growth stocks over the past few years. In the first quarter of 2025, however, he began increasing his value exposure again to move toward a more balanced allocation alongside growth.
Mike Martin, vice president of market strategy at TradingBlock, agrees that elevated rates are driving the outperformance of small-cap value stocks over small-cap growth. He believes value stocks will continue to outperform growth stocks over the foreseeable future.
“The market is currently pricing in just one to two rate cuts this year, and with the federal funds rate at 3.50% to 3.75%, even two quarter-point cuts would still leave borrowers, growth stocks, facing a historically high cost of money,” Martin said.
Elsewhere Rafia Hasan, chief investment officer at Perigon Wealth Management, says she does employ a structural tilt towards value and high profitability stocks in some client portfolios, meaning that she owns more of these types of stocks as compared to a market portfolio.
“In those portfolios we do look to rebalance portfolios to maintain those tilts over time,” Hasan said.
VALUE & GROWTH? REALLY?
Despite the growing delta between value and growth index market performance, there is a rising question as to what qualifies as a value or growth stock. For example, Magnificent 7 members Amazon (Ticker: AMZN) and Alphabet (Ticker: GOOG) are heavily weighted in both indexes.
At last check, the value-based IWD trades at a 22 PE based on its trailing 12-month earnings, yielding 1.7%. That compares to a 36 PE for the growth-based IWF, yielding .36%.
Tova Wealth’s Starkey says the distinction between growth and value stocks has indeed grown increasingly blurred.
“As a portfolio manager, I conduct extensive due diligence when selecting funds and setting allocations, particularly given overlapping holdings across growth and value strategies. This underscores the importance of working with an experienced portfolio manager to maintain appropriate exposures and avoid unintended concentration risk,” Starkey said.
Hasan, on the other hand, does not see this overlap as a recent phenomenon.
“Going back 15 years I recall a 30% overlap between value and growth indices as defined by major index providers. What is newer is seeing technology companies that have historically been thought of as growth companies show up in both indices,” Hasan said.
Added Hasan: “I think as investors we can’t become stuck in our framing of what is a value stock. Additionally, we do need to revisit and refresh how we define value versus growth because companies today are different than when Benjamin Graham came up with the concept of a value stock in the 1920s.”
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