The rise of artificial intelligence (AI), the dominant position of internet giants, and the assumption that the Fed’s tightening cycle will soon end are boosting the performance of growth companies, causing them to outperform value stocks.
The growth equity style has made a remarkable return in the first five months of 2023, recovering from a setback in 2022 resulting from aggressive interest rate hikes that affected tech and other overvalued sectors.
So far this year, the Vanguard Growth ETF VUG has outperformed the Vanguard Value ETF VTV by an impressive 29%. The growth-oriented ETF has increased by 26%, while the value-oriented ETF has struggled, experiencing a 3% decline year-to-date.
Only a month ago, the performance gap between growth and value was about 8%, indicating the rapid surge of growth-related companies in recent weeks.
Growth vs. Value in 2023
Value’s 2022 Outperformance vs. Growth: Wiped Out in 5 Months
The almost 50% increase in value stocks’ performance over growth stocks in 2022 has nearly been erased by growth’s outperformance in just five months of 2023.
Since the Great Financial Crisis, the outperformance of growth versus value stocks in the U.S. stock market has been a recurring trend. This pattern has been supported by an extended period of very low interest rates, causing valuations in technology and growth sectors to rise while depressing stocks in value-related sectors.
The year 2022 seemed to indicate a potential reversal of this pattern, as energy stocks surged and technology-based stocks fell dramatically. However, this reversal was short-lived, as growth stocks re-established their dominance in 2023, supported by the robust growth of AI and tech stocks.
Chart: 15 Years of Value Vs Growth
Stock Movers: Gainers and Losers
About 70% of the Vanguard Growth ETF’s year-to-date performance can be attributed to seven stocks: Apple Inc. AAPL added 4.7 percentage points to the overall performance, while Microsoft Corp. MSF added 4.2ppt, NVIDIA Corp. NVDA added 2.7ppt, Alphabet Inc. GOOG GOOGL added 2.2ppt, Amazon Inc. AMZN added 1.9ppt, Tesla Inc. TSLA added 1.2ppt, and Meta Platforms Inc. META added 1ppt.
- The Vanguard Value ETF saw negative contributions from the financials, healthcare and energy sectors, with First Republic Bank, Pfizer Inc. PFE, Johson & Johnson JNJ, Charles Schwab Corp. SCHW, Chevron Corp. CVX, and Bank of America BAC being the worst contributors to the performance.
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