Understanding investment styles is essential because different market environments reward different approaches, shaping both performance and risk. If you were to cast your mind back five years ago, the question would’ve been whether value as an investment style had become obsolete.
This was the period when growth companies, such as technology firms, were starting to hit new highs amid a backdrop of low interest rates and accommodative monetary policy. In fact, between 2011 and 2021, value companies underperformed growth companies on a global scale by almost 150%*.
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But things have changed in recent years – fast and furious value rallies (such as 2016) have given way to a renaissance of sorts for this investment style. While some of the tech growth names have continued to outperform (NVIDIA, Microsoft, Amazon and Alphabet) – value has begun to record significant stretches of outperformance – most notably between 2020 and 2022.
This reversal in performance from value is due to numerous factors:
- Rising interest rates hurt growth valuations (rates rose sharply in 2022-2023): Value stocks, which tend to generate more cash flow today, were less affected.
- Inflation favoured value sectors: Many value-heavy sectors—financials, energy, industrials, and materials—often perform relatively well when inflation rises. The post-pandemic inflation surge boosted profits in several of these industries.
- Value started from cheap valuations: By 2020, the valuation gap between value and growth stocks had become historically wide. Investors had bid up technology and other growth companies for years, leaving many value stocks trading at large discounts. When market leadership broadened, value had room to catch up.
- Economic reopening helped cyclical businesses: After the COVID lockdowns, sectors such as banks, energy companies, travel-related businesses and manufacturers benefited from the economic recovery. Many of these companies are classified as value stocks.
Value versus growth – the differences explained
Growth companies are typically businesses that have delivered strong earnings growth and are expected to continue growing profits at an above-average rate, often supported by high margins and scalable business models — although this is not guaranteed.
Growth companies tend to be:
- Priced at a premium. Investors are often willing to pay more for growth companies today because they expect higher future earnings. The valuation reflects expectations of continued strong performance rather than current profits alone.
- Focused on high earnings growth. These are companies where investors expect profits to grow faster than the wider market over time, often driven by structural trends such as technology, innovation or market disruption.
- Driven by expectations rather than assets. A large part of their value comes from future growth potential rather than tangible assets or current earnings. This can make sentiment and expectations a key driver of share prices.
Value investing is based on the idea of buying companies where the underlying worth of the business is higher than the current share price suggests – in other words, buying £1 of assets for 50p.
Value companies tend to be:
- Priced below their intrinsic value. These are companies that may be temporarily out of favour or misunderstood, where the share price is lower than the long-term value of the underlying business.
- Driven by recovery or re-rating potential. Returns are often generated if and when the market re-evaluates the company and its prospects improve. Many value companies are exposed to economic cycles or industry challenges, which can impact earnings and sentiment.
- Carry the risk of “value traps”. Some companies look cheap for a reason. Weak fundamentals, structural decline or poor capital allocation can mean the expected recovery never materialises, and in some cases, businesses fail altogether.
Where are we now?
History has shown that different styles might outperform depending on market conditions. Traditionally, when bond yields fall, growth stocks have performed well, while value stocks have been known to outperform in the early stages of economic and market cycles (when bond yields rise).
Bond yields trended lower from the early 1980s to 2020 but have risen in the past five years (notably in 2022). For example, the US 10-year Treasury yield was around 0.5%–1.5% during 2020–2021, when central banks had cut rates aggressively during the pandemic – it is now at 4.5%**, with a similar story in the UK.
We could now be in a phase where there is more of a level playing field between growth and value than we’ve seen over recent decades. Some phases of the economic cycle will favour growth, and some will favour value. For example, AI is still bolstering the technology sector, while many value investors would point to sectors like financials, energy, utilities and materials still trading at relatively low valuations.
The past five years reflect this balanced view on styles, with growth returning 75.6% and value 66.9%***, with dispersion in returns in each calendar year****.
So how can investors gain exposure to value – without sacrificing growth?
Thankfully, there are several funds which sit on the fence – giving you the potential for returns in either economic scenario. Below are five funds which fit into this style-agnostic bucket.
Fidelity Global Special Situations
This fund seeks opportunities across value, quality and growth, aiming to avoid reliance on any single style. The team groups ideas into three areas: corporate change (structural business transformation), compounding value (sustainable free cash flow growth), and unique businesses (scalable models with exceptional growth potential). By combining these drivers, the portfolio aims to deliver diversified, stock-specific returns with broad stylistic exposure. It has returned 64% in the past five years***.
JK Japan
A core Japanese equity fund designed to minimise style risk through a pragmatic, style-agnostic approach. This is relatively unusual in Japan, where many managers lean heavily toward either value or growth. The team focuses on identifying investment themes and conducting deep bottom-up analysis to build a portfolio of 35-50 holdings. The result is a balanced approach aimed at capturing the best opportunities across the market. It has returned 146% in the past five years***.
A concentrated European ex-UK equity fund holding around 30-40 stocks. The managers believe cash flow is the key driver of long-term shareholder returns, and this underpins all stock selection. The portfolio is constructed with flexibility, allowing the team to shift between value and growth opportunities depending on where they see the strongest prospects. This adaptable approach aims to reduce style bias while focusing on high-quality cash-generative businesses. It has returned 79% in the past five years***.
WS Raynar UK Smaller Companies
Managed by Philip Rodrigs, this UK smaller companies fund typically holds 70-90 stocks. The approach combines bottom-up stock selection with a balance between conviction and diversification, particularly important in the less-researched small-cap market. The manager focuses on strong management teams, attractive valuations and identifiable growth catalysts. The result is a flexible portfolio designed to capture opportunities across different styles within the sector.
Pinnacle Life Cycle Global Equity Select
A core global equity fund investing across the full company life cycle, from early growth to mature businesses. The aim is to reduce reliance on broad style, sector or geographic exposure and instead focus on stock-specific drivers of return. The fund is relatively new, so performance history is limited. However, the team brings a strong long-term track record and a disciplined, consistent investment philosophy applied across market cycles.
