Which investment style triumphed in 2023?

In 2022, the US equity markets faced formidable challenges as a confluence of factors, including four-decade-high inflation and escalating interest rates, curtailed investors’ enthusiasm for high-risk assets, notably growth-oriented stocks. 

However, the narrative took a remarkable turn in 2023. As macroeconomic pressures began to subside and inflationary concerns abated, a newfound optimism swept through the markets. This positive shift reignited investors’ interest in growth-focused businesses, marking a stark departure from the previous year’s cautious stance. 

Growth outpaces value in 2023

Represented by iShares S&P 500 Growth ETF (IVW), growth stocks saw an overall decline of 30% in 2022. Although these assets tend to grow at a faster pace compared to value stocks, they are also more sensitive to macroeconomic headwinds and times of uncertainty.

As such, value stocks, represented by iShares S&P 500 Value ETF (IVE), outperformed growth throughout 2022, though the exchange-traded fund (ETF) still fell 7% for the year. 

This year, however, is a different story. 

Led by unparalleled demand for artificial intelligence (AI), growth stocks led by the tech sector drew significant investor attention, with the IVW surging roughly 28% year-to-date. 

Composed of large-cap U.S. stocks that have exhibited robust growth in recent years, the ETF invests in all well-known tech juggernauts. Its biggest holdings include Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), Amazon (NASDAQ: AMZN), and Nvidia (NASDAQ: NVDA), among others, all of which saw significant gains in 2023.

The spotlight was taken by NVDA, which surged more than 240% since January 1. 

Meanwhile, value stocks also delivered a positive display in 2023, albeit the gains were less pronounced. IVE, an ETF that invests in stocks with lower valuations relative to their fundamentals. 

Gaining around 18.1% year-to-date, IVE’s largest holdings include Warren Buffett’s Berkshire Hathaway (NYSE: BRK.A), JPMorgan Chase (NYSE: JPM), Exxon Mobil (NYSE: XOM), Johnson & Johnson (NYSE: JNJ), and others.

These companies are less sensitive to periods of upheaval, but they also offer less growth upside in favorable market conditions. 

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