Growth vs. Value Funds: Historical Returns and Current Positioning

Last updated: February 2026 | Data as of: Year-end 2024

For most of the past century, value stocks outperformed growth stocks. Then a single decade changed the conversation. The period following the 2008 financial crisis saw large cap growth deliver annualized returns that left value counterparts behind by a wide margin, leading some advisors to question whether value investing had permanently lost its edge. That question, and the data behind it, matters for every advisor constructing a diversified equity portfolio.

How Growth and Value Are Defined

The growth-versus-value distinction begins with how companies are priced relative to their fundamentals. Three valuation metrics do most of the work: the price-to-earnings (P/E) ratio, the price-to-book (P/B) ratio, and dividend yield.

The P/E ratio divides a company's stock price by its earnings per share. If a company earns $5 per share and trades at $100, its P/E is 20, meaning investors pay $20 for each dollar of earnings. As a broad generality, a P/E of 30 or more signals an expensive stock; a P/E of 10 signals a cheap one. The limitation is that earnings are not particularly stable. Corporate accountants have considerable discretion in how they report earnings, which is why Ben Graham, the father of value investing, argued that earnings are useful only when averaged over several years. By that logic, mutual fund P/E ratios are quite useful, since they compile the earnings of dozens or hundreds of companies into a single figure.

The P/B ratio compares stock price to book value (roughly, a company's net assets). A P/B below 1.0 historically suggests a cheap stock; above 5.0 suggests an expensive one. Book value is considered more stable than earnings, making it a useful secondary check. Over the past 90 years, the S&P 500's P/B ratio has averaged roughly 1.6, though it has swung from below 1.0 during severe bear markets to well above 5.0 during speculative peaks.

Dividend yield (annual dividend divided by stock price) completes the picture. Historically, the S&P 500's dividend yield has averaged approximately 4% over long measurement periods, though it has ranged from above 7% during periods of depressed stock prices to below 1.5% during expensive markets.

Growth funds feature high P/E ratios, high P/B ratios, and low dividend yields. Their holdings are companies expected to increase earnings at rates well above the market average, often in technology, healthcare, and consumer discretionary sectors. Value funds show the opposite profile: low P/E, low P/B, and comparatively high dividend yields. Their holdings are companies the market has overlooked, undervalued, or temporarily abandoned, often concentrated in financials, energy, and industrials.

The Historical Record: Style Returns by Decade

The long-term data on growth versus value performance across all three capitalization ranges reveals a consistent pattern with one major exception.

Annualized Returns by Style and Decade

Source: Russell style indexes, MSCI EAFE. Figures are annualized compound returns. EAFE = Europe, Australasia, Far East (developed international markets, excluding the U.S. and Canada). Advisors should verify current figures through their preferred data providers, as index methodology and constituents change over time.

Through the 1970s, 1980s, 1990s, and 2000s, value stocks outperformed their growth counterparts in nearly every capitalization range. The 1970s were especially striking: large value returned 12% annualized versus 3% for large growth, a nine-percentage-point gap that compounded into a dramatic difference in wealth over the decade. Small value at 15% annualized was the strongest domestic category across the entire period.

The 1990s represented growth's best relative showing, with large growth returning 20% annualized during the technology boom. Even then, value categories held their own at 14% across multiple cap ranges. The 2000s, which included both the dot-com bust and the 2008 financial crisis, reasserted the value advantage. Large growth managed just 1% annualized for the entire decade while large value delivered 5%.

The 2010s broke the historical pattern. Following the 2008 crisis, growth stocks (particularly large cap technology companies) dominated in a way that had few precedents. Low interest rates, rapid digital adoption, and the enormous profitability of platform companies drove large cap growth to its strongest relative decade. Value strategies, which had rewarded patient investors for decades, struggled.

Why Style Cycles Matter More Than Style Winners

The decade-by-decade data reveals something that a single summary statistic would obscure: neither growth nor value wins permanently. Style leadership rotates, often for extended periods, and the magnitude of the difference between the two can be large enough to reshape a client's financial outcome.

An advisor who loaded a portfolio entirely into large growth in the early 1970s would have watched it return 3% per year while a diversified value approach delivered four times that figure. An advisor who loaded entirely into value in the 2010s would have underperformed a growth-heavy portfolio for a frustrating decade. Neither extreme represents sound practice.

The rotation happens because growth and value respond to different economic conditions. Growth stocks tend to lead during periods of falling interest rates, expanding corporate profit margins, and investor willingness to pay premium valuations for future earnings. Value stocks tend to perform better during economic recoveries, periods of rising rates, and environments where cyclical businesses (financials, energy, industrials) benefit from improving fundamentals.

This is why the valuation metrics described earlier are not just classification tools. They are signals. When growth stock P/E ratios reach extreme levels, the historical record suggests that future returns from those elevated starting points tend to be lower. When value stock P/E ratios are deeply depressed, the reverse tends to hold. Valuation levels do not predict short-term performance, but they have been reasonable indicators of long-term relative results.

What the Investor Return Gap Tells Us

Even when stock fund categories deliver attractive returns, fund investors frequently capture far less than those returns suggest. Research tracking actual investor dollar-weighted returns (which account for the timing and size of cash flows into and out of funds) has consistently shown a gap between fund returns and investor returns.

Over 20-year measurement periods, equity fund investors have historically earned several percentage points less per year than the funds they invested in. The gap is driven by predictable behaviors: buying after strong performance, selling after declines, switching between funds at the wrong moments, and withdrawing capital during market stress.

This pattern is especially pronounced in growth categories, where volatile performance attracts performance-chasing behavior. A fund that gains 40% in one year and loses 25% the next may have a respectable compound return, but the investor who bought after the 40% gain and sold after the 25% loss experienced something very different. Value categories, with their lower volatility and higher dividend income, have historically shown smaller investor return gaps, though the gap exists across all fund types.

The implication for portfolio construction is that the "best" style is not simply the one with the highest published return. It is the one that a client can actually hold through a complete market cycle. A portfolio that blends growth and value across capitalizations gives clients diversification against style cycles and reduces the behavioral temptation to chase whichever style is currently leading.

International Context: The EAFE Dimension

Domestic style analysis is only part of the picture. The MSCI EAFE Index, covering 22 developed markets in Europe, Australasia, and the Far East (excluding the U.S. and Canada), provides a benchmark for international equity performance. EAFE's constituents are predominantly large cap companies from mature economies.

EAFE's decade-by-decade record shows its own style cycles relative to U.S. equities. International stocks led decisively in the 1980s (23% annualized) while trailing U.S. categories in most other decades. The divergence has been especially wide in recent years: EAFE returned roughly 5% annualized during the 2010s while the S&P 500 returned approximately 13%.

For advisors, international developed markets add a dimension of diversification that style rotation alone cannot provide. Currency movements, different sector compositions, and varying monetary policy cycles mean that EAFE-based funds do not simply replicate U.S. growth-and-value patterns at a different level. They introduce distinct return drivers. The years when U.S. growth leads are not always the years when international markets lag, and vice versa.

Reading Valuation Metrics as an Advisor

The three valuation metrics (P/E, P/B, dividend yield) serve dual roles in practice. They classify funds into style categories, and they provide a rough gauge of whether markets or market segments are historically cheap, expensive, or somewhere in between.

The S&P 500's P/E ratio has ranged from negative territory during the Great Depression to above 44 during the December 1999 peak. Its P/B ratio has ranged from below 1.0 to above 8.0, averaging roughly 1.6. Its dividend yield has ranged from above 7% to below 1.3%. None of these figures predict tomorrow's market direction, but extreme readings have historically preceded significant reversals. Fund-level P/E and P/B ratios are particularly useful because they aggregate dozens or hundreds of companies, smoothing out the individual-company noise that makes single-stock ratios unreliable.

Advisors working with clients on style allocation decisions benefit from checking where current valuations sit relative to historical ranges. If large growth P/E ratios are at the high end of their historical range while value P/E ratios are near the low end, the relative opportunity set may favor a tilt. The data does not provide timing precision, but it does provide context that turns style allocation from a guess into an informed judgment.

The Advisor's Edge

The historical return data in this article is publicly available. Any investor with a data terminal can pull Russell growth and value index returns by decade. What separates informed advice from raw data is the ability to translate style cycles into portfolio construction decisions: evaluating where current valuations sit relative to historical ranges, building style diversification that reduces the risk of decade-long underperformance, identifying when a client's growth-versus-value tilt has drifted from its target, and coaching clients through the behavioral challenges that style underperformance creates. These are the analytical skills that the Certified Fund Specialist (CFS) designation develops across its two-module curriculum. For advisors looking to explore how portfolio diversification reduces risk without sacrificing return potential, the Portfolio Diversification for Risk Reduction article examines the foundational research.

Sources and Notes: Domestic style returns are based on Russell growth and value indexes across capitalization ranges. International returns use the MSCI EAFE Index. Valuation metric ranges reference S&P 500 historical data as compiled by major index providers and academic sources. Investor return gap research draws from ICI, Dalbar, and Morningstar studies tracking dollar-weighted versus time-weighted fund returns. Specific current-year figures should be verified through preferred data providers, as index returns and valuation metrics are updated continuously.