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Value Versus Growth: Which Is Better?

Jun. 10, 2013 11:21 AM ETIJJ, IJK, IJS, IJT, IVE, IVW4 Comments
John Dowdee profile picture
John Dowdee

When trying to build a balanced portfolio, investors have been torn between competing philosophies, such as value versus growth and large-cap versus mid-cap versus small-cap. When evaluating these strategies, there is a tendency to base decisions on total return, but in my opinion, "return" is only one side of the coin. Investors should be equally concerned with risk. This article will evaluate growth and value portfolios over multiple time frames in terms of reward-to-risk ratios. Along the way I will also assess how capitalization (large, medium, and small) affect the performance of these growth and value oriented funds.

Standard and Poor's has developed a wide range of indexes that are widely used as benchmarks for ETFs and mutual funds. The indexes used in this article are:

  • The S&P 500 Index. This index focuses on the large-cap sector of the market. The constituent companies each have a market cap of over $4.4 billion. In total, this sector comprises about 75% of the total value of the domestic equity market.
  • The S&P Mid-Cap 400 Index. The index represents the mid-cap (market cap between $1 billion and $4.4 billion) range of companies. In total, mid-cap companies represent about 18% of the domestic market's value.
  • The S&P Small Cap 600 Index. This index is comprised of small companies, each with a market cap between $300 million and $1.4 billion. This sector represents the remaining 7% of the domestic market's value.

The ETFs that I analyzed were based on these Standard and Poor's indexes. There are similar ETFs that I could have used but these have been around the longest (launched in 2000) and all have reasonable liquidity, with an average trading volume of at least 100,000 shares per day. The ETFs are:

  • iShares S&P 500 Value (IVE). This ETF tracks the third of

This article was written by

John Dowdee profile picture
My name is John Dowdee (also known as Dr D) and I have spent the last 30+ years as a program manager at a large aerospace company. I have a Ph.D in Engineering Science (mostly exotic math) together with a Master’s degree in Statistics and a Bachelor’s degree in Electrical Engineering. I started investing seriously in the 80s. I was a voracious reader and bought just about any book I could find on the stock market, futures, and economics. I finally realized that there was no "holy grail". However, using my statistics background, I did develop a technique for choosing investents based on their risk vs reward profile. I am now retired and use this technique to manage my retirement portfolio. I share this strategy on my website: www.superchargeretirementincome.com

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