Will growth stocks give way to value investing?

For more than ten years, the price of a share has barely seemed to matter. Those who invested in growth won hand over fist. Those who went hunting for bargains were left in the dust. The picture is now shifting. European bank shares have been outperforming the Magnificent Seven since 2022, and value shares are ahead worldwide this year. Is this a short-term catch-up or a structural shift?

Let's start by defining our terms. Growth investors buy companies where they expect turnover and profits to continue to rise rapidly, and they are willing to pay dearly for it. These are technology companies such as Nvidia, ASML or Tesla. Value investors do the opposite: they look for shares that are listed cheaply relative to their earnings, book value or dividends, often because the market has lost sight of them.

Index publisher MSCI uses these criteria to divide the equity market into two camps. In the growth camp, you can currently expect to pay almost 24 times future earnings and more than 8 times book value. In the value camp, you are looking at 15 times future earnings and less than 3 times book value (source 1 and source 2 - as of September 2026). The price difference is huge. The question is whether it is justified.

The growth decade

To understand the current reversal, we need to go back to the era of zero interest rates. After the 2008 financial crisis, central banks pushed interest rates down towards zero for years. Cheap money is a blessing for growth stocks: their profits are largely way out in the future, and with low interest rates, that distant future carries more weight in today’s valuation.

The result was a period in which growth clearly outperformed value. Over the past ten years, growth has also largely maintained its lead: the global growth index rose on average by 15.5% per year, the value index by 11.1% (source 1 and source 2). In 2020, the year of the pandemic, the difference was extreme: growth increased by 34%, while value fell by nearly 0.4%.

However, historically, this period was the exception, not the rule. If you look at stock market history as a whole, you see a different picture.

What history teaches us

Benjamin Graham, Warren Buffett’s mentor, laid the foundations for value investing in the thirties: only buy a share when it is well below its intrinsic value. He referred to that difference as the margin of safety. The academic world followed in 1992, when economists Eugene Fama and Kenneth French found that cheap stocks systematically outperform expensive ones over the long term. Fama later won the Nobel Prize for this work.

Their database, which covers back to mid-1926, is still used as a reference. According to these figures, US value stocks have outperformed their growth peers by an average of 4 percentage points per year since 1927 (source). This is also holds true worldwide: since the end of 1974, the MSCI World Value Index has returned an average of 11.7% per year (source), compared to 10.8% for the MSCI World Growth Index (source). These indices have only existed since 1997; the earlier figures were calculated by MSCI. A difference of not quite one percentage point, but over half a century means that the final capital is more than half as high again.

An important nuance to grasp: this lead never runs in a straight line. Value can lag for long periods, as it did in the late 1990s during the dotcom bubble, and again from 2007 to 2020. Conversely, these drought periods are often followed by sharp catch-up movements. When the dotcom bubble burst between 2000 and 2002, the growth index lost 57% in two and a half years (source); meanwhile, value stocks held up much better.

The turnaround in numbers

It was the rise in interest rates from 2022 that turned things around. Globally, the growth index lost 29% that year, while the value index lost less than 6% (source). After that, growth regained the initiative for a while thanks to AI euphoria. But the tide has been turning once again since the end of 2025. By the end of August 2026, the MSCI World Value Index had returned 17.9% for the year to date, almost twice the 9.1% of the MSCI World Growth Index (source).

In Europe, the picture is even more pronounced. The MSCI Europe Value Index rose by 30.5% in 2025, compared to 19.4% for the broad European index (source). The main driver: banks. The Euro Stoxx Banks, the index of the largest eurozone banks, rose by over 80% last year, the best year since the index's first in 1987 (source). Even in a time that investors ignored the sector for years. According to Goldman Sachs strategists, European banks have significantly outperformed the Magnificent Seven, the seven major US tech companies, since 2022 (source). Most investors missed this, as everyone was looking at AI.

Why the tide is turning

Four drivers explain the change.

Firstly, interest rates. Now they are back at higher levels, profits in the distant future will weigh less heavily (and banks will also once again start earning more from their core business).

Secondly, valuations. After years of euphoria, the gap between cheap and expensive equities is especially wide. According to asset manager GMO, at the start of 2026 the cheaper half of the US stock market was listed at one of the lowest levels compared to the more expensive half in over forty years. To return to normal historical levels, value stocks still need to outperform growth stocks by 70% in the US, and around 50% worldwide (source). A gap like this will tend to close over the long term.

Thirdly, concentration. In the global growth index, Nvidia and Apple together account for over 21%, and the ten largest listings make up almost half (source - as of September 2026). Any doubt about the returns on the massive AI investments therefore impacts that index head-on. In the value index, the ten largest positions only make up 22%.

Fourth, the new economic reality. Energy and financials are typical value sectors: in the global value index, for example, energy accounts for over 7%, while it is not even 1% in the growth index. Financials account for over 26% of the value index, and less than 7% of the growth index (source). And these are the sectors that are doing well in the present climate.

Please note: value is not always what it seems

Caution does need to be exercised before enthusiastically buying an ETF of value shares. The way in which index providers define "value" sometimes delivers unexpected results. Chip manufacturer Micron, one of the major winners of the AI boom, is currently the third largest equity in the MSCI World Value Index. Microsoft and Meta are numbers one and two (source).

How is this possible? When a cyclical company’s earnings suddenly explode, the share temporarily seems to be crazy cheap compared to those earnings. A quantitative formula then picks it up as "good value", even if it is not an overlooked bargain but a hyped share that may be at its peak. Part of the strong performance this year comes from shares that actually belong in the other camp. If you want to actively invest in value, it is better to look closely at what is actually held in a fund or tracker, rather than at the label.

Temporary or structural?

To be honest, no one knows for sure. There are strong arguments for this being a structural shift. Interest rates do not seem likely to return to zero, and the valuation gap remains historically large. Closer to home, the European economy is benefiting from a more pragmatic industrial policy, high German investments and a strong banking sector. In addition, history shows that value catch-up movements often take years.

But there are also some counter-arguments. If AI investments deliver the promised productivity gains, growth stocks will be able to deliver on their high valuations. And value stocks have their own pitfalls: in the 2008 financial crisis, the global value index lost almost 61%, more than the market as a whole, partly because it is so heavily weighted in banks. (source). Cheap can always get cheaper.

Do you need to adjust your strategy?

Those who have invested mainly in broad global indices in recent years are now unintentionally heavily overloaded in a handful of US tech giants. This is not a reason to panic, but you do need to actively deal with it. Some things to think about:

• Do not pick just one camp, spread over both. History shows that value and growth alternate, in cycles that sometimes last more than ten years. If you switch camps completely at the wrong moment, you will be buying high and selling low. A portfolio with both types fluctuates less and rides both cycles.
• Look at the regions. Europe is structurally stronger in "value" than the US, with many banks, energy, industry and defensive sectors. If you want to reduce your exposure to US tech, you don't necessarily have to invest in a value fund. A broader spread into Europe will already do a lot.
• Read the label. Not every value fund holds what you might expect. Check its largest holdings and sector allocation before buying in.
• Stick to your investment horizon. Style rotations are not a short-term game. Adding value is best done as a structural part of a diversified portfolio, not as a bet on the next quarter.

Before investing, be sure to check up the key features and risks of financial instruments.

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