In a recent post I did on my updated asset allocation, I showed that I added some value asset targets. I currently have both growth and value stocks in my dividend portfolio, however I felt that I needed to have a target that would provide the best diversification and something that I could track. In particular, I wanted to ensure I had a value target because value has been a very strong performer in the equity markets since very early days.
In a report prepared by Al Frank Asset Management, Inc., they provided a chart that demonstrated the power value stocks have held in the markets both for large-caps and small-caps. Both small-value and large-value beat out their large-cap counterparts in terms of long term performance. This graphic demonstrates the result of their research.
More specifically, the Morningstar research showed that:
Using price-to-book value ratios (lower = value & higher = growth) as the distinguishing factors, Morningstar found that large-cap and small-cap value stocks achieved 12.0 percent and 14.8 percent annualized rates of return, respectively, versus 9.1 percent and 9.6 percent per year for large-cap and small-cap growth stocks.
As part of an overall asset allocation strategy, these types of results can not be overlooked in my eyes. Even with an index strategy, an investor could be well served by incorporating a value component to their portfolio.
(Photo Credit: Chris Cummings)