Growth, Value, and Core:
Building Balance Across Market Cycles
Successful long-term investing requires balance!
That’s why we use Growth, Value, and Core ETF managers to build a portfolio that performs across a variety of market environments — without the need to predict what comes next.
Every portfolio includes Growth, Value, and Core ETFs to provide
balance and consistency over time, and each plays a unique role.
Style | Definition | Focus | Typical Characteristics |
|---|---|---|---|
Growth ETFs | Invest in companies expected to grow earnings faster than the overall market | Innovation, technology, Healthcare expansion | Higher volatility, strong performance in rising Markets, economic expansion & low interest rates |
Value ETFs | Focus on companies trading below intrinsic value based on fundamentals | Dividends, steady cash flow, stable industries | Often outperform during market recoveries or high-inflation periods |
Core ETFs | Blend of both growth and value, representing the total market or a balanced subset | Broad diversification | Reduces style bias and smooths performance over time |
Growth ETFs
Invest in companies expected to grow earnings faster than the overall market
Innovation, technology, Healthcare expansion
Higher volatility, strong performance in rising Markets, economic expansion & low interest rates
Value ETFs
Focus on companies trading below intrinsic value based on fundamentals
Dividends, steady cash flow, stable industries
Often outperform during market recoveries or high- inflation periods
Core ETFs
Blend of both growth and value, representing the total market or a balanced subset
Broad diversification
Reduces style bias and smooths performance over time
Data Point:
Research from Fama & French (2015) and AQR Capital (2023) found that portfolios blending multiple factors such as value, quality, and momentum produced up to 40% higher risk-adjusted returns and smaller drawdowns during downturns.
Why We Use All Three Styles
Markets don’t favor one investment style forever, Over the last several decades, growth and value have alternated in leadership depending on market cycles, interest rates, and economic trends.
- Growth Outperformance: From 2010–2020, growth stocks (Russell 1000 Growth Index) outperformed value by 5.8% per year.
- Value Recovery: From 2021–2023, value stocks (Russell 1000 Value Index) outpaced growth by 3.2% per year (Morningstar, 2024).
- Core Advantage: Over 2004–2024, a Core portfolio delivered 8.1% annualized return with 20–25% less volatility than holding only growth or value (Vanguard & Fama-French data).
This is why we don’t try to guess whether Growth or Value will lead!
Markets alternate in favoring Growth or Value over time. By including all three, we don’t have to predict cycles — Core managers do that dynamically using fundamentals and momentum quantitative factors...
Momentum vs. Fundamental Analysis: A Complementary Approach
Fundamental Analysis
- Focus: Determines the intrinsic value of a company or security.
- Method: Evaluates earnings, revenue growth, debt levels, cash flow, management quality, and competitive position.
- Goal: Identify securities that are undervalued or mispriced relative to their fundamentals.
- Approach Type: Long-term, value-driven, analytical, and research-based.
- Typical Users: Active managers, research analysts, and value-oriented investors.
Example:
If a company’s fair value is estimated at $100 but its stock trades at $80, a fundamental investor may buy it expecting the price to rise toward its true value over time.
Momentum Quantitative Factor Analysis
- Focus: Identifies securities with strong recent price performance and favorable technical trends.
- Method: Uses data and algorithms to rank securities based on recent returns (typically over the past 6–12 months), volatility-adjusted scores, and relative strength vs. peers.
- Goal: Capture persistent market trends by investing in what’s currently leading — with the expectation that winners will continue outperforming in the near term.
- Approach Type: Systematic, rules-based, and emotion-free.
- Typical Users: Quantitative and factor-based managers.
Data Point:
According to research published in the Journal of Finance and by AQR Capital, global momentum strategies have historically produced 3–5% excess annualized return over market benchmarks since 1927, though with periods of short-term volatility.
Key Differences
Aspect | Fundamental Analysis | Momentum Quantitative Analysis |
|---|---|---|
Primary Focus | Company value and financial strength | Recent price trends and relative strength |
Time Horizon | Long-term (1–5 years) | Short- to intermediate-term (3–12 months) |
Decision Driver | Intrinsic valuation metrics | Price and performance data |
Investment Style | Value or Growth | Trend-following / Tactical |
Data Input | Earnings, cash flow, P/E ratios, dividends | Price returns, moving averages, volatility |
Human Judgment | High | Low (systematic and rules-based) |
Primary Focus
Company value and financial strength
Recent price trends and relative strength
Time Horizon
Long-term (1–5 years)
Short to intermediate-term (3–12 months)
Decision Driver
Intrinsic valuation metrics
Price and performance data
Investment Style
Value or Growth
Trend-following / Tactical
Data Input
Earnings, cash flow, P/E ratios, dividends
Price returns, moving averages, volatility
Human Judgment
High
Low (systematic and rules-based)
Why Combining Both Matters
A truly multi-factor and evidence-based portfolio benefits from integrating both approaches:
- Fundamental managers focus on long-term value creation and financial strength.
- Momentum managers identify short-term leadership trends based on quantitative data.
- Together, they provide a balanced and adaptive allocation that reduces the need to “guess” which style — growth or value — will outperform in the next cycle.
This combination allows portfolios to:
- Capture upside performance through momentum factors.
- Maintain risk control and valuation discipline through fundamentals.
- Delivers improved risk-adjusted returns over time — particularly valuable for retirees seeking growth with stability.
Data Insight:
Studies by Eugene Fama and Kenneth French (2015) show that blending multiple factors — including value, size, and momentum — enhances portfolio efficiency, improving the Sharpe ratio and long-term consistency across market cycles.
The Role of Core Managers
Portfolios typically start with equal weights between Growth and Value ETFs. Core managers act as style navigators:
- Dynamic Allocation: Core managers are overweight, or underweight Growth or Value based on fundamental and momentum quantitative factor analysis, rather than market guesses.
- No Guesswork: Investors don’t have to time markets; managers systematically adjust exposures to capture style leadership.
- Improved Returns: Research shows that portfolios using active Core managers can outperform static allocations by 0.8% annually over 10 years (Morningstar, 2023).
Factor-Based & Evidence-Based, A Hybrid Strategy – Scholes’ Contribution
- Myron Scholes (Nobel 1997) emphasized risk management and structured portfolio strategies through his work on derivatives and financial engineering.
- His research supports a hybrid investment approach, blending:
- Passive Core ETFs: Broad-market exposure, low cost, tax-efficient.
- Active Satellite ETFs: Systematic, factor-based strategies targeting modest alpha opportunities.
Client Takeaway:
By combining passive and systematically active strategies, the portfolio captures market returns while also exploiting opportunities identified through research, without guessing which style will lead.
Why This is Evidence-Based
- Passive ETFs: Capture market returns efficiently (Fama, Sharpe).
- Active Core Managers: Systematically adjust factor exposures using proven methodologies (French, Scholes).
- Dynamic Risk Management: Portfolios respond to market conditions without emotional decisions, in line with Modern Portfolio Theory (Markowitz).
Result:
A portfolio that is diversified, adaptive, resilient, tax-efficient, disciplined, and aligned with retirement goals and built to perform across changing market environments — aligning stability with opportunity and built on decades of Nobel Prize-winning research.
Result:
A portfolio that is diversified, adaptive, resilient, tax-efficient, disciplined, and aligned with retirement goals and built to perform across changing market environments — aligning stability with opportunity and built on decades of Nobel Prize-winning research.