Value and growth investing styles

Cap categories tell you the size of the companies a fund holds. Style tells you something different: the way the manager decides which shares to buy. Value and growth are the two best-known styles, and a fund’s style shapes how it behaves through a market cycle just as much as its size does. Knowing the two apart makes a fund’s name and objective far easier to read.

What an investing style is

A style is the lens a manager uses to pick companies. It is separate from the size band the fund invests in and from any sector focus — it is about the kind of business the manager looks for and the price they are willing to pay for it. Two funds holding companies of the same size can still behave quite differently because they hunt for different things.

The growth style

A growth manager looks for companies whose earnings are expected to grow quickly, and is willing to pay a higher price for that promise. The bet is that the company keeps growing fast enough to justify the price. Growth holdings tend to be exciting businesses in a hurry, and their share prices can be sensitive to any wobble in that growth story.

The value style

A value manager does the opposite: they look for companies trading below what they judge the business to be worth — often unloved, out-of-fashion firms — and buy them cheaply in the expectation that the price catches up over time. Value investing asks for patience, because the market can stay pessimistic about a company for a long while. A contra approach is a close cousin, deliberately going against the prevailing mood.

Style is separate from company size

Style and size are two independent choices, and a fund makes both. You can have a large-cap value fund or a small-cap growth fund; the size band tells you the range of company the fund holds, and the style tells you how it picks within that band. Reading the two together — alongside the scheme document — gives you a fuller sense of what a fund is actually doing than either label alone.

Why style matters: the two take turns

Value and growth go in and out of favour in cycles. There are long stretches when growth leads and value lags, and other stretches when the reverse is true — and the switch is hard to time. This is why a value fund can look disappointing precisely when growth is winning, and vice versa; it is the style’s turn, not necessarily a failing of the fund. Some funds run a blend of both styles to smooth out that swing. None of this says one style is better — they are different temperaments, each with its own seasons, and which one suits you is a personal matter this article does not decide.