Investment menu design Diversifying beyond growth: The strategic role of large-cap value

Recent market volatility has refocused attention on the role large-cap value strategies can play in participant equity allocations. Here are five key points for plan sponsors to consider about this important asset class.

1. Remember the role of large-cap value in a DC investment menu

Value and growth represent two distinct equity investing styles — the classic tortoise and hare dynamic. Value stocks generally trade at lower valuations and often show steadier, lower volatility behavior than growth stocks, particularly during choppier market periods. In contrast, growth stocks can be more exciting in strong markets, with likely higher volatility but the potential for outsized returns from rapidly expanding companies.

Neither style is inherently better. Over time, both have delivered competitive results, though large-cap value and large-cap growth investment styles come with different characteristics and risks. Because of these differences, history suggests that holding both in a well-diversified retirement portfolio may be advantageous. Their complementary traits may help participants better navigate shifting market dynamics.

2. Understand the growth-value cycle

Large-cap value and growth stocks have historically taken turns in market leadership depending on the economic cycle and broader market conditions. Value investing has tended to lead during softer or recessionary periods, rising rate environments, and times of higher inflation. Growth investing has more often led during economic expansions, declining interest rate periods, and low inflation backdrops.

Before the past couple of years, large-cap growth outperformed large-cap value (Russell 1000 Growth Index versus Russell 1000 Value Index) for an unusually extended stretch, supported by ultra-low rates and strong gains from mega-cap tech. You’d need to go back to the early 2000s to find a similarly long value-led run, which lasted roughly seven years.

These shifts matter because annual leadership changes compound over time, shaping participants’ cumulative investment experience. While performance has tended to even out over the long term, shorter-term leadership cycles can be both meaningful and prolonged.

Rotating market leadership: Understanding the growth-value cycle (%)

Calendar year returns of Russell 1000 Value Index versus Russell 1000 Growth Index

3. Rotation and market broadening

The chart below shows how the share of the S&P 500 Index held by the top 10 companies has risen from late 2023 to early 2026, underscoring the index’s top‑heavy profile. This visual supports our point that diversification beyond a few mega‑caps matters for participant outcomes.

From “top‑heavy” to “more balanced”: Why a broader market can help value 

Over the last few years, a small group of mega‑caps did a lot of the lifting in US equities — by early 2026 they still represented roughly one‑third of the S&P 500 Index. That level of concentration can be beneficial when momentum is strong, but it also makes index returns more dependent on a handful of companies. 

In recent months, we’ve seen signs of healthier participation. Several 2026 outlooks point to broadening leadership beyond the original AI cohort, and equal‑weight and smaller‑cap segments have begun to close the gap during risk‑on periods — classic markers of an improving breadth backdrop. Historically, when leadership widens, non mega-caps and value‑tilted areas (financials, industrials, energy, parts of health care) have more room to contribute. For plan sponsors, that argues for keeping a true value option on the menu so participants can benefit from more balanced drivers of return rather than relying on a few names.

Equal‑weight vs. cap‑weight: A look at recent trends

Equal‑weight has led over the past several months (year-to-date, 3-month, and 6-month basis), while cap‑weight still leads over the trailing year and calendar years 2023–2025. This pattern is consistent with a potential early‑stage broadening, where the “average stock” begins to close the gap even as longer timeframes still reflect the prior mega‑cap‑led cycle.

Breadth check (at a glance):

• Past several months: Equal‑weight > cap‑weight (year-to-date, 3-month, and 6-month basis)
• Longer timeframes (1‑year; calendar year 2023–2025): Cap‑weight still ahead
• Net‑net: The average stock is starting to close the gap, consistent with market broadening 

For plan sponsors, broader participation can signal change in the market’s leadership dynamics. When performance expands across sectors and the market capitalization spectrum, capital often rotates toward sectors that had previously lagged but trade at lower valuations — such as financials, industrials, energy, and many small- and mid-cap companies. Because these segments tend to screen as value-oriented, periods of improving market breadth have historically been more supportive of value and cyclical exposures.

That said, market broadening does not necessarily mean growth stocks will underperform dramatically. Instead, it often results in rotation — where growth continues to perform but no longer dominates overall market returns. In this environment, smaller companies, cyclicals, and value-oriented stocks may contribute a larger share of gains, making diversification and stock selection more important than during periods when a few mega-cap companies drive most of the market’s performance.

4. The case for value investing in an inflationary economic environment

In today’s volatile market, inflation may be cooling, but it hasn’t gone away. For plan sponsors and DC advisors, this persistent inflationary backdrop can present an opportunity to revisit investment menus and participant outcomes through a strategic lens.

Historically, value stocks — those trading below their intrinsic worth — have tended to outperform growth stocks during periods of moderate to high inflation. These companies often exhibit strong fundamentals, stable cash flows, and pricing power that can help them navigate inflationary pressures more effectively than their growth-oriented peers.

Implications for DC plan design

• Impact during inflationary times: Value strategies have historically delivered stronger relative performance in inflationary regimes, offering a potential hedge within core equity allocations.
• Long-term return potential: DC plans are built for long-term wealth accumulation. Value investing aligns with this horizon, offering the potential for durable, compounding returns.
• Diversification and risk management: Including value-oriented options in plan menus can help enhance diversification and reduce overexposure to growth-heavy benchmarks.

While it’s impossible to predict the future, we believe the current environment suggests value investing may continue to play a leadership role. For individuals focused on optimizing participant outcomes, now could be the right time to evaluate how value strategies might fit into broader DC investment lineups.

5. Investing through a value lens

Three ideas for value investors to consider:

1. Stay grounded in fundamentals. Short-term prices may not reflect the intrinsic value of a stock. That’s okay — investment strategies should be built for long-term results. By focusing on any disconnects between price and value, investors can avoid chasing sentiment and build portfolios grounded in fundamentals.
2. Use volatility as an opportunity. When prices disconnect from fundamentals, disciplined investors may be able to buy quality companies at attractive valuations. When price-setters lose confidence, prices can fall sharply, revealing an “air pocket” between price and value. In a downturn, even high-quality or growth names can become undervalued, offering long-term potential upside.
3. Avoid chasing the price-setters. Stick to the process. The market’s price may not reflect true value.

What to look for in strategy selection

• Proven long-term outperformance. Because these strategies invest mainly in out-of-favor stocks, it can be important to view their returns in the context of their longer-term performance, paying close attention to periods of market volatility.
• Investment team and process tenure and stability. Make sure that the current managers and their specific investment approach are what generated a strategy’s long-term track record. Also, look for managers with a proven ability to avoid value traps. Some stocks are trading at cheaper valuations for good reason. Understand the strategy’s process and track record for identifying and avoiding these types of potential missteps.
• Style consistency. Look for strategies that have consistently delivered distinct value style attributes without overly drifting into blend style characteristics. In the last growth market runup, many of the top-performing large-cap value managers actually exhibited much more growth-like characteristics in their underlying stock holdings. This can be problematic in asset allocation when market leadership shifts to value, and portfolios without true value exposure miss the potential upside from more stable, value-driven strategies.

Next steps

Adding a large-cap value strategy to a plan’s equity lineup may help participants strengthen retirement outcomes by building potentially more resilient equity allocations across a broader range of market conditions. Also, consider how to target educational communications to participants who may be less diversified in their equity holdings, particularly if they are over or solely relying on more growth-oriented strategies. Plans may also want to reexamine their current offerings to see if there are opportunities to upgrade participants’ choices in the large-cap value segment, given the dramatic stock market shifts over the past several years.