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Adding Value: Shining a spotlight on large-cap value strategies

November 17, 2023

Kevin Holt

Chief Investment Officer, US Value Equities Senior Portfolio Manager

Tracy Fielder

Product Management Director, Co-Lead Senior Strategist, Rethinking Risk

Adding Value: Shining a spotlight on large-cap value strategies

Key takeaways

Value and growth investing refer to two fundamentally different investment styles. Think tortoise versus hare from the well-known fable.

Value investing tends to take a turn in market leadership during periods of higher interest rates and inflation, as well as softer and recessionary economic cycles.

Long-term outperformance, investment team tenure and stability, and style consistency are some factors for plan sponsors to assess when selecting a value investing approach.

Heightened market volatility has refocused attention on large-cap value strategies in participant equity allocations. When looking at large-cap value investing, there are three key points for plan sponsors to consider.

The role of large-cap value in a DC investment menu

Adding a large-cap value allocation to a retirement portfolio has typically helped broaden diversification, lowered volatility exposure, and strengthened return potential across full economic cycles.

Understand the growth-value cycle

Both value and growth large-cap stocks have taken turns in market leadership, depending on the current cycle and overall market conditions. Value investing has tended to lead during softer and recessionary economic cycles, in rising and higher interest rate periods, and when inflation is higher. Growth investing has tended to lead during economic expansion cycles, in falling and lower interest rate periods, and when inflation is low.

Key differences in value versus growth investment styles
Large-cap value	Large-cap growth
Tends to offer slower, steadier growth potential over time Invests in companies that appear to be trading below what they are worth Generally lower valuation stocks characterized by lower PEs, higher dividends, and less volatility Typically, lower risk/reward profile vs. large-cap growth	Tends to offer stronger upside potential in up markets but with greater downside in volatile markets Invests in companies that appear to be growing faster than the market Generally higher valuation stocks characterized by higher PEs, lower (if any) dividends, and greater volatility Typically, higher risk/reward profile vs. large-cap value
Price-to-earnings ratio (PE). Lower PE stocks indicate investors are paying less for every dollar of earnings received. Higher PE stocks indicate investors are paying more for every dollar of earings received.

Know what to look for in strategy selection

Lastly, when selecting a value investing strategy, plan sponsors can look for proven long-term outperformance, investment team and process tenure and stability, and consistency in delivering value style attributes.

Learn more about how adding a large-cap value strategy to a plan’s equity lineup may help strengthen retirement outcomes for participants.