In our blog last year, “Is Value Investing Making a Comeback?” , we investigated what factors were outperforming year to date, and valuation emerged as one of the only outperforming style composite factors. As the market subsequently rebounded on the back of technology megacaps, AI demand, and strong earnings growth, it would be reasonable to assume growth uniformly  led the comeback. While this has been true in the Market Cap Weighted S&P 500, an equal-weighted view tells a different story. A  review of factor performance reveals that valuation has moved from a potential rotation signal to a meaningful complement to growth within the S&P 500.

(AFL Report for April 2025)

https://www.spglobal.com/market-intelligence/en/news-insights/research/is-value-investing-making-a-comeback 

While last year’s article highlighted early signs of a potential rotation toward value, the most recent cross-sectional evidence suggests that Valuation factors are increasingly asserting themselves within the S&P 500. As shown in the above exhibit, the valuation style composite is currently one of the strongest-performing factors, with positive return spreads across multiple recent periods. Notably, valuation is trailing only volatility in terms of outperformance, surpassing other style factors such as momentum, earnings quality, size, and capital efficiency. This relative strength indicates that cheaper stocks are outperforming more expensive peers, even amid a market environment still influenced by macro uncertainty and higher interest-rate sensitivity.

(AFL Report for May 2026)

While volatility remains the top-performing factor, reflecting ongoing investor caution and risk management, its implementation comes with trade-offs. The average annual turnover in quintile 1 is around 70%, while valuation hovers around 30%. The inherently higher turnover of volatility and momentum strategies is expected and often detracts from returns due to transaction costs and tax inefficiencies. The persistence of valuation-driven outperformance reinforces the notion that price discipline is becoming increasingly important in security selection. Importantly, valuation’s performance has been achieved without a broad-based market dislocation, suggesting that this is less a short-term tactical rebound and more a gradual re-rating by investors.

Taken together, the data supports the argument that value investing may be re-emerging as a meaningful source of excess returns, particularly when combined with complementary factors. Although we may have anticipated a broader regime shift toward value one year ago, the latest factor evidence points instead to a more nuanced outcome, where valuation is working alongside growth to drive outsized returns.

Using Capital IQ Pro’s Portfolio Analytics, we can extend the analysis by examining a Growth at a Reasonable Price (GARP) framework. Using  an equalweighted S&P 500 as the investment universe, the data highlights a meaningful dispersion in returns across growth quintiles.

As shown in the below report, stocks in the top growth quintile generated approximately 31% cumulative returns, outperforming the overall equal‑weighted S&P 500 benchmark by roughly 9% over the period analyzed.

To refine the analysis further, the top growth quintile was subsequently segmented by valuation quintiles to identify attractively priced growth stocks. The results are striking — growth stocks with the most favorable valuations delivered cumulative returns of approximately 65% — exceeding the benchmark by nearly 44%. Moreover, these stocks outperformed the least attractively valued stocks within the same highgrowth cohort by approximately 63%, highlighting the substantial impact of valuation discipline even within a growth oriented universe.

Taken together, this analysis demonstrates that combining strong growth characteristics with reasonable valuations can significantly enhance returns relative to both the broader market and traditional growth-only strategies. This evidence reinforces the relevance of a GARP approach, particularly in environments where dispersion across styles and valuations remains elevated.