In equity markets, investors generally fall into two camps: value and growth. These approaches share a common goal — buying assets that will increase in worth — but they take very different paths to get there. Value investors look for companies they believe are undervalued by the market, often focusing on fundamentals and pricing gaps. Growth investors, on the other hand, target companies with strong future potential, even if their current valuations appear high. The distinction lies not just in strategy, but in mindset, expectations, and the types of risks each approach is willing to embrace.
What Is Value Investing?
Value investing aims to identify companies trading at a discount. These stocks tend to show lower valuation multiples, such as price-to-earnings (P/E) or price-to-book (P/B) ratios, relative to the broader market.
Common traits of value-oriented securities include:
- Valuation Metrics: Typically lower relative P/E or P/B ratios.
- Company Maturity: Often established companies with steady historical cash flows.
- Dividends: A higher likelihood of distributing dividends to shareholders.
- Sector Concentration: Frequently found in traditional sectors such as financials, industrials, and energy.
What Is Growth Investing?
Growth investing, by contrast, aims to focus on companies expected to expand at an above-average rate relative to their industry or the broader market. Investors may be willing to pay higher current valuations because they anticipate that future earnings growth will ideally justify the premium price.
Common traits of growth-oriented securities include:
- Valuation Multiples: Tends to feature higher multiples based on future prospects.
- Earnings Trajectory: Often characterized by strong historical or projected revenue growth.
- Capital Allocation: Typically features lower dividend payouts as earnings are reinvested into expansion.
- Sensitivity: Appears to show greater sensitivity to market sentiment and interest rate fluctuations.
Performance and Market Cycles
Both styles tend to experience periods of relative outperformance depending on the economic environment. Growth stocks may excel when credit is accessible and technological disruption drives earnings. Conversely, value stocks may outperform during economic recoveries or periods of rising interest rates, as their current earnings and dividends aim to provide a degree of valuation support.
Finding the Right Balance for Your Portfolio
Rather than opposing camps, value and growth can work in tandem within a well-constructed portfolio. Value strategies focus on uncovering overlooked opportunities trading at a discount, while growth investing leans into companies with the potential to expand rapidly over time. Recognizing how these approaches differ — and where they can complement each other — allows you to better tailor your portfolio to your goals, risk tolerance, and investment horizon.
Disclaimer:
VettaFi LLC (“VettaFi”) is the index provider for the CI U.S. Enhanced Value Index Fund (CVLU) and CI U.S. Enhanced Momentum Index ETF (CMOM) for which it receives an index licensing fee. However, CVLU and CMOM are not issued, sponsored, endorsed, or sold by VettaFi or its affiliates, and VettaFi and its affiliates have no obligation or liability in connection with the issuance, administration, marketing, or trading of CVLU and CMOM. An affiliate of VettaFi LLC operates the TMX Money website.
Commissions, trailing commissions, management fees and expenses all may be associated with an investment in mutual funds and exchange-traded funds (ETFs). Please read the prospectus before investing. Important information about mutual funds and ETFs is contained in their respective prospectus. Mutual funds and ETFs are not guaranteed; their values change frequently, and past performance may not be repeated. You will usually pay brokerage fees to your dealer if you purchase or sell units of an ETF on recognized Canadian exchanges. If the units are purchased or sold on these Canadian exchanges, investors may pay more than the current net asset value when buying units of the ETF and may receive less than the current net asset value when selling them.
Certain statements contained in this communication are based in whole or in part on information provided by third parties and CI Global Asset Management has taken reasonable steps to ensure their accuracy. Market conditions may change which may impact the information contained in this document.
VettaFi and the VettaFi Indexes are service marks of VettaFi LLC (“VettaFi”) and have been licensed for use by CI Global Asset Management. The VettaFi Indexes are not issued, sponsored, endorsed, sold or promoted by VettaFi or its affiliates. VettaFi makes no representation or warranty, express or implied, to the purchasers or owners of the VettaFi Indexes or any member of the public regarding the advisability of investing in securities generally or in the VettaFi Indexes particularly or the ability of the VettaFi Indexes to track general market performance. VettaFi’s only relationship to the VettaFi Indexes is the licensing of the service marks and the VettaFi Indexes, which is determined, composed and calculated by VettaFi without regard to CI Global Asset Management or the VettaFi Indexes. VettaFi is not responsible for and has not participated in the determination of the timing of, prices at, or quantities of the Indexes issued by CI Global Asset Management. VettaFi has no obligation or liability in connection with the issuance, administration, marketing or trading of the VettaFi Indexes.