Should Investors Focus on Value or Growth After Coronavirus?

Sooner or later, investors will have to deal with a post-coronavirus world, but which factor will lead the way—growth or value? One way to determine this is to look back at history.

“For 90 years, growth stocks averaged an annual return of 12.6%, whereas value stocks returned an even more robust 17% per year,” a Motley Fool article noted. “To be clear, investors wouldn’t be complaining with either of these annualized returns over the long run. Then again, the nominal dollar difference between these returns is massive. Assuming a $100 investment in growth stocks and value stocks in 1926, the growth stock investment would have been worth about $4.4 million by 2015, while the value stock investment would be worth a whopping $137 million. That’s the difference between a 12.6% annualized return and 17% per year.”

However, additional data suggests that there is also a time when growth can shine.

“Additionally, BofA/Merrill Lynch analysts note that growth stocks have historically performed best when the economy is growing slowly, whereas value stocks performed best when the U.S. economy was running on all cylinders,” the article added. “However, since the Great Recession, we’ve witnessed somewhat the opposite. With lending rates being pushed to record-low levels, growth stocks have been given the ability to cheaply borrow and expand their businesses. As long as access to cheap capital persists, growth stocks may be standout investments relative to value stocks.”

Growth opportunities can be had in small cap and mid cap companies that are still in the early stages of their businesses, which can lead to scalable growth under the right stewardship. As such, investors can look at this pair of ETFs— the Principal U.S. Small-Cap Multi-Factor Index ETF (PSC) and the Principal U.S. Small-MidCap Multi-Factor Core Index ETF (PSM).

PSC seeks investment results that closely correspond, to the performance of the Nasdaq US Small Cap Select Leaders Index. The fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies that compose the index. The index uses a quantitative model designed to identify equity securities (including growth and value stock) of small-capitalization companies in the Nasdaq US Small Cap Index (the “parent index”) that exhibit potential for high degrees of sustainable shareholder yield, pricing power, and strong momentum, while adjusting for liquidity and quality.

PSM seeks to provide investment results that closely correspond, before expenses, to the performance of the Nasdaq US Small Mid Cap Select Leaders Core Index. Under normal circumstances, the fund invests at least 80% of its net assets in equity securities of U.S. companies with small- to medium-market capitalizations that compose the index at the time of purchase. The index uses a quantitative model designed to identify equity securities of companies in the Nasdaq US Small Cap Index and Nasdaq US Mid Cap Index that exhibit potential for high degrees of sustainable shareholder value, growth, and strong momentum.

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