Variations on value: A closer look at U.S. value investing

After more than a decade of growth style dominance and megacap‑driven returns, the U.S. equity market is changing — stretched valuations, widening dispersion and indexes increasingly reliant on a handful of companies. Beneath the surface, value investing is quietly regaining momentum.

Recent performance underscores that shift. In the fourth quarter of 2025, the Russell 1000 Value Index outpaced its growth counterpart by 270 basis points (3.8% compared with 1.1%), cutting the Russell 1000 Growth Index’s full‑year advantage nearly in half. Valuations tell a similar story: While the S&P 500 Index cyclically adjusted price-to-earnings (CAPE) ratio nears 40 times earnings — levels historically linked to weaker forward returns — U.S. value equities continue to trade well below their average 27.8% discount to growth. 

For investors, that combination of mispriced entry points and the potential for multiple expansion creates a compelling risk‑reward backdrop at a time when active value managers are increasingly outpacing their benchmarks.
 

From a market structure lens, today’s benchmarks are also extremely top-heavy. The last time markets became this narrow, during the dot-com bubble, long‑term returns stalled for nearly a decade. Once leadership broadened, the market returned to an emphasis on fundamentals, which has historically favored value. We’re seeing hints of that today: Health care was the top appreciating sector within the S&P 500. From a global perspective, defensive sectors led cyclicals (5.3% versus 2.8%) within the MSCI All Country World Index (ACWI) in the fourth quarter of 2025.
 

A major part of this story sits beyond fundamentals in the macroeconomic backdrop itself. A steepening yield curve, with falling short‑term rates and firmer long‑term yields, is creating more favorable conditions for value‑oriented areas such as financials, industrials and energy. This effect is reinforced by the inflation backdrop. Research shows in high‑inflation regimes, value’s outperformance (7.4%) was nearly 15 times the 0.5% seen in low‑inflation environments. Even in moderate‑inflation conditions, value maintained a meaningful return advantage over growth.

As investors look to reintroduce value, the opportunity set is far from one‑dimensional. Across the value spectrum, approaches range from deep‑value turnarounds to quality‑oriented strategies that prioritize stability and dividends. Sitting between them is a growing category often referred to as total value — approaches designed to gather exposure across a full range of value opportunities, rather than anchor to one end of the spectrum. For many investors, this balanced profile can be especially compelling — offering exposure that can flex as markets rotate — while still staying grounded in valuation discipline.
 

Not all value exposure, however, is created equal. Passive approaches can unintentionally concentrate risk or pull portfolios into mid cap or structurally challenged names, because the benchmarks they are seeking to replicate may be focusing on these areas. These value traps may over-rely on simple valuation screens. Active approaches, grounded in fundamentals and security selection, can navigate these differences more deliberately as they seek to provide index-beating results.
 

In the paper linked below, we take a closer look at the value spectrum, highlighting where risks emerge, how styles differ and how fundamental research can help investors better capitalize on value opportunities.