This commentary is available as a PDF here.


  • Style boxes give us the impression that “growth” and “value” sit at opposite ends of the spectrum.
  • In reality, whether a company is growing or shrinking (“growth”) is independent of whether a security is cheap or expensive (“value”).
  • To align with the single axis expectation of “growth versus value,” most index providers combine a growth score and a value score together to create a composite score, which is projected upon the “growth / value” spectrum.
  • In doing so, most value indices are laden with cheap, shrinking companies and most growth indices focus on expensive, growing ones.  Neither truly represents a value or growth approach to investing.

Quickly: what’s the opposite of “value”?

We’d wager that most investors would say “growth.”  Our industry has been well conditioned by the proliferation of style boxes.  In fact, just recently we were asked where one of our products fall on the “value / growth” spectrum.

The problem is, that question does not actually make any sense.  Value and growth do not exist on a single, continuous spectrum.  Value is not the opposite of growth: growth is a totally independent measurement.

Yet the way products are built in our industry, you would not get that impression.  Index products are offered in “value” and “growth” styles and are pitched as polar opposites.

Index manufacturers know that growth and value are not opposites of one another.  Nevertheless, they build products as if they are.  Let’s take a look at how MSCI builds their value and growth indices. They begin by looking at a number of value and growth characteristics:


They then put stocks, ranked on those characteristics, onto a two-dimensional “value” and “growth” space.

2D Quadrants

The stuff in the top left is called “value” and the stuff in the bottom right is “growth.”

2D Quandrants - Their Definition

Technically, it is a bit more complicated than that, since the stuff in the top right and bottom left get included too to varying degrees.  While this means “value” and “growth” have some overlapping holdings, the “purest” expressions of the factors are held solely in their respective index.

MSCI Quadrants

The problem, however, is that we’re building indices with characteristics we don’t want.

So let us re-define these axes to what they really mean.  “Value” really is an axis between “cheap” and “expensive.”  Growth is an axis measuring “shrinking” to “growing.”  When we re-label the axes that way, we get a different picture.

2D Quandrants - Relabeled

“Value / Non-Growth” is now “cheap but shrinking” companies.  “Growth / Non-Value” is now “growing but expensive” companies.  So here’s what we’re really getting:

2D Quadrants - What we're really getting

So when we buy “value,” we’re really getting a bunch of contracting companies.  When we buy “growth” we’re concentrated in the expensive stuff.  Why would we want that exposure?  Again, growth is not the opposite of value.

Our value index should be growth agnostic, just as our growth index should be value agnostic.  What we really want is:

2D Quandrants - What we want
You’ll notice that we now have overlap in our definitions.  That’s okay!  Growth stocks can be value.  Value stocks can be growth!  They are completely independent measures from one another!

Style boxes do a tremendous disservice to our industry, misrepresenting value and growth as a single, continuous axis of measurement.  They’re not.  They are two completely independent axes.  By defining them as polar ends of a single spectrum, we end up with dilutive investment products.

So who else does this?

CRSP does.

Russell does.

S&P Dow Jones does.
S&P Dow Jones

MSCI, CRSP, Russell, and S&P Dow Jones all combine growth and value into a single score, associating “low growth” with “cheap” and “high growth” with “expensive.”  So if you’re buying a value index, you’re intrinsically over-weighted towards shrinking companies.  If you buy a growth index, you’re over-weighted towards expensive companies.  Arguably, you want neither.

So caveat emptor: when you’re buying value and growth products tracking any of these indices, you’re probably not getting what you expect – or likely want.