Two main distinctions are used when categorizing individual stocks. The first is size: is the company large or small? The second is style: is the stock primarily attractive to investors because of its growth characteristics or because it presents a particularly compelling value?
Dividing along those lines, we get the large/growth, small/value and other variant groups that are commonly referenced in the industry, including the way SMI defines our U.S. stock-risk categories.
SMI has written in considerable detail about the differences between growth and value investing, including why you should have both in your portfolio, so we’re not going to retrace all of that ground here.
Instead, we want to draw your attention to the dramatic outperformance of growth stocks over value stocks in recent years. According to Morningstar, over the past year the returns of both large/growth funds and small/growth funds have been roughly twice that of their corresponding value counterparts. What’s more, growth stocks have now beat value stocks in seven of the past 11 years (dating back to the financial crisis).
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