growth value 1

7/30/2019 Growth Value 1

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2008 Morningstar, Inc. All rights reserved. 3/1/2008LCN200803-2013997

Growth and Value Investing


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Equity Investment Classification

2008 Morningstar, Inc. All rights reserved. 3/1/2008

Large-cap

9,500 Mutual funds 283 Stocks

Mid-cap

2,486 Mutual funds

701 Stocks

Small-cap

2,066 Mutual funds

4,908 Stocks


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What are Growth and Value Stocks?


Growth stocks

High growth rate of earnings, sales Low book-to-price, high price-to-

earnings ratios

Paying lower or no dividends

Risks

Future growth does not occur as

expected

Book-to-price ratios rise unexpectedly,

price-to-earnings ratio decline

unexpectedly

Value stocks

Slower growth of earnings and sales High book-to-price, low price-to-

earnings ratios

Higher dividend yields

Turnaround opportunities

Risks

Evaluation of stocks as good value is

misread

Difficult to stick to value policy when

prices are beaten down


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Risk and Return by Size and StyleGrowth and value stocks 19692007

Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannotbe made directly in an index. 2008 Morningstar, Inc. All rights reserved. 3/1/2008

Large value

Mid value

Small value

Large growth Mid growth Small growth

14

12

10

8

16% Compound annual return

15%Standard deviation

17 19 21 23 25 27


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Range of Annual ReturnsGrowth and value stocks 19692007

Past performance is no guarantee of future results. Each bar shows the range of compound annual returns for each asset class over the period19692007. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 2008Morningstar, Inc. All rights reserved. 3/1/2008

60% Return

40

20

0

20

40

Large growth Large value Mid growth Mid value Small growth Small value

47.6%

32.4%

39.4%

22.1%

10.8%

51.3%

33.0%

9.7%

61.2%

20.8%

13.6%

60.5%

40.6%

9.1%

58.3%

24.4%

14.8%Compoundannual return:

9.2%


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Growth and Value Investing19692007

Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of 1969. Assumes reinvestment of incomeand no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly inan index. 2008 Morningstar, Inc. All rights reserved. 3/1/2008

14.8%10.89.29.1

Compound annual return

Small value Large value Large growth Small growth

$220.84

$55.22

$31.02$29.69

$1,000

100

10

1

0

1969 1975 1981 1987 1993 1999 2005


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Growth and Value Investing19982007

Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of 1998. Assumes reinvestment of incomeand no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly inan index. 2008 Morningstar, Inc. All rights reserved. 3/1/2008

$1.53

$1.75

$1.84

$2.79

10.8%6.35.84.3

Compound annual return

$5

0.7

1

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Small value Large value Small growth Large growth


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One-Year Growth and Value Cycles19692007

Past performance is no guarantee of future results. Performance differential measures the outperformance of each asset class over one another ona 12-month rolling basis. Each 12-month rolling return represents the annualized return over the prior 12 months. This is for illustrative purposes onlyand not indicative of any investment. An investment cannot be made directly in an index. 2008 Morningstar, Inc. All rights reserved. 3/1/2008

12-month rolling returns

40%

30

20

10

Large growth Large valuePerformance differential

75%

50

25

0

25

1969

JanDec

1974

JanDec

2004

JanDec

1999

JanDec

1994

JanDec

1989

JanDec

1984

JanDec

1979

JanDec


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Three-Year Growth and Value Cycles19692007

Past performance is no guarantee of future results. Performance differential measures the outperformance of each asset class over one another ona 36-month rolling basis. Each 36-month rolling return represents the annualized return over the prior 36 months. This is for illustrative purposes onlyand not indicative of any investment. An investment cannot be made directly in an index. 2008 Morningstar, Inc. All rights reserved. 3/1/2008

Performance differential

36-month rolling returns

Large value Large growth

0

25

50%

5

10

15

20

25%

2006200119961991198619811976Dec 1971

2004199919941989198419791974Jan 196925

0


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Growth and Value by DecadeCompound annual rates of return by decade

Past performance is no guarantee of future results. *Based on the years 1928

1929. **Based on the years 2000

2007. This is for illustrativepurposes only and not indicative of any investment. An investment cannot be made directly in an index. 2008 Morningstar, Inc. All rights reserved.3/1/2008

1920s* 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s**

20

15

10

5

0

5

Growth stocks

Value stocks

25% Return


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Moving With the MarketAnnual performance comparison 19882007


Large growth Large value S&P 500

50%

40

30

20

10

0

10

20

30 2006 20071988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005


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Bull Market PerformanceBooming 1990s: 19951999

Past performance is no guarantee of future results. Hypothetical value of $1,000 invested at the beginning of 1995. This is for illustrative purposesonly and not indicative of any investment. An investment cannot be made directly in an index. 2008 Morningstar, Inc. All rights reserved. 3/1/2008

$4,500

3,500

2,500

1,500

500

1995 1996 1997 1998 1995 1997 19981999 19991996

Growth Value

Small growth:

Compound annual return:

17.6

Mid growth: 23.2

Large growth: 34.4%

$4,379

$2,842

$2,249


Large value:

Mid value: Small value:

24.8%

17.716.4

$3,033

$2,258$2,136


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Bear Market PerformanceEarly 2000s bear market: July 2000December 2003

Past performance is no guarantee of future results. Hypothetical value of $1000 invested at the beginning of July 2000. This is for illustrativepurposes only and not indicative of any investment. An investment cannot be made directly in an index. 2008 Morningstar, Inc. All rights reserved.3/1/2008

$1,800

1,400

1,000

600

200 July2000

July2001

July2002

July2003

July2000

July2001

July2002

July2003

Small growth:


5.8%

Mid growth:

7.3 Large growth: 14.5

$577

$767$812


Large value:

Mid value:

Small value:

0.913.7

16.5%$1,705

$1,568

$969

Growth Value


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Blending Growth and Value


Balance growth investments with those that produce income

Invest in both large and small companies, as well as a mix of well established and newcompanies

Consider investments that are currently out of favor but have potential to increase in

value

Blending effectively may cushion against the many ups and downs in the market


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Style Winners and Losers19982007


Highestreturns

Lowestreturns

20071998 1999 2000 2001 2002 2003 2004 2005 2006

Large growth

(LG)

Large value

(LV)

Mid growth

(MG)

Mid value

(MV)

Small growth

(SG)

Small value

(SV)

Diversified portfolio

(DP)

12.1

LG

8.7

MG

7.4

SG

4.1

DP

2.5

LV

0.4

MV

5.6SV

47.6%

LG

16.6

LV

10.7

DP

6.4

MG

2.3

SG

0.8

MV

4.1SV

51.3

MG

39.3

SG

29.8

LG

23.2

DP

13.1

LV

4.8

MV

4.6SV

25.4

MV

22.7

SV

3.0

LV

3.4

DP

18.5

MG

22.0

LG

22.6SG

14.8

SV

3.9

MV

0.4

SG

2.9

DP

7.2

MG

8.8

LV

20.1LG

12.8

MV

13.3

SV

19.8

DP

20.1

LV

21.5

MG

23.9

LG

27.8SG

48.4

SG

47.9

SV

43.9

MV

40.3

MG

39.0

DP

29.9

LV

24.8LG

21.1

SV

20.8

MV

19.6

SG

15.8

DP

13.4

LV

13.1

MG

6.7LG

14.0

MV

9.2

SV

8.8

MG

7.9

DP

7.0

LV

4.7

SG

3.3LG

23.2

SV

22.1

LV

15.3

DP

13.9

MG

13.0

MV

10.8

SG

8.9LG

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