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Value Funds' 2021 Rebound Was Just a Blip: Morningstar

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What You Need to Know

  • Value funds outperformed growth funds in 2021 but lagged considerably over the past 10 years.
  • The outperformance of value funds in 2021 was concentrated in the first half of the year.
  • Small-cap and mid-cap value funds were the standouts in 2021 but not the biggest laggards over the past 10 years.

Don’t expect the rebound in value funds in 2021, after years of underperformance, to last.

According to a recent report from Morningstar data journalist Katherine Lynch, the bounce-back was most evident in small- and mid-cap funds and limited primarily to the first half of last year.

By the second half of 2021, value funds performed more or less in line with growth funds as investors grew concerned about rising inflation, the more infectious omicron variant and pending Federal Reserve rate increases.

Morningstar chart comparing value and growth funds in 2021

Still, by year-end 2021, small-cap value funds had surged almost 32% compared with 11% for small-cap growth funds, and mid-cap value funds soared 29% compared to 13% for mid-cap growth funds. Both types of value funds outperformed the S&P 500, which gained 27%.

Large-cap value funds also outperformed their growth counterparts — 26% versus 20.5% — but lagged their small-cap and mid-cap value brethren as well as the S&P 500.

Morningstar chart comparing value and growth funds performance erformance

Despite value funds’ outperformance in 2021 compared to growth funds, “value investors are still at a disadvantage over the longer term,” wrote Lynch. Small- and mid-cap value funds trailed their growth counterparts by more than 92 percentage points over the past 10 years, and large-cap value funds have lagged large-growth funds by 173 percentage points, almost twice as much.


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