Growth and value represent two distinct investment styles in the equity market. A common adage suggests buying growth in bull markets and value in bear markets, and the reasoning behind this is straightforward. Growth styles typically benefit from industrial trends and a recovery in risk appetite; when the market ascends, rising risk sentiment makes the earnings elasticity and aggressive attributes of growth more apparent. Conversely, value styles are often characterized by low valuations and high dividends, providing a defensive buffer during market declines through their valuation appeal and yield advantages.

These two styles usually take turns leading, with neither able to dominate for long, but as long as capital continues to circulate within the stock market, it will likely flow towards one of them. Yet, markets seldom move in a single direction. More often than not, rather than sustained rallies or declines, the market advances amidst hesitation, standoffs, and repeated reversals, making it difficult for investors to predict future movements. In such times, instead of repeatedly guessing whether to tilt towards growth or value, utilizing pure style index tools like the E Fund CNI Growth 100 ETF Feeder Fund (A/C: 027858/027859) and the E Fund CNI Value 100 ETF Feeder Fund (A/C: 025497/025498) for allocation purposes can help convert a bet on a single path into broader coverage of multiple return sources.

No Permanent Winner in Style Rotation

The market cycles rapidly through uptrends, downtrends, and sideways phases. In a range-bound market, a clear main theme is often absent, and the relative strength between growth and value styles frequently alternates. This implies that during such periods, a concentrated bet on a single style might lead to chasing the strong performer just as preferences begin to shift. For instance, using the CSI 800 Total Return Index as a benchmark, market states can be classified into three mutually exclusive phases: "uptrend," "downtrend," and "sideways." The classification rule involves looking back at the cumulative return over the past six months: a rise exceeding 7.5% marks an "uptrend," a fall beyond 7.5% indicates a "downtrend," and anything in between is deemed "sideways." Daily states are smoothed with a 20-day window and 10 confirmations, with segments shorter than five trading days merged into adjacent longer states. Looking back at all sideways markets since 2020, the dominance between the two styles has constantly swapped, with growth and value alternating in leadership without a persistent winner, making it easy for those betting on just one style to mistime their moves.

Balancing Growth and Value for Diverse Return Streams

The return sources for stock investment can broadly be divided into three aspects: corporate earnings growth, valuation changes, and dividend returns. The growth and value investment styles correspond to different return drivers. Growth style banks on the potential for earnings expansion, industrial trends, and valuation re-rating; behind the value style lies the support of low valuations, cash flows, and dividend income. Allocating to index tools with distinct growth and value characteristics simultaneously allows for coverage of various investment return sources in a complex market environment, thereby simplifying the investment decision-making process without needing to forecast which style might prevail. A simple backtest of a "growth + value" allocation strategy can illustrate this point. Using the CNI Growth 100 Index to represent the growth style and the CNI Value 100 Index for value, a portfolio split 60% value and 40% growth, rebalanced monthly, has historically achieved positive annualized excess returns relative to the CSI 800 Index—a proxy for the broad market—across uptrend, sideways, and downtrend environments. The outperformance is particularly notable in sideways markets characterized by frequent style rotation.

If each relatively complete market state since 2020 is examined individually, this allocation strategy also tends to post better annualized returns than the CSI 800 Index in the majority of uptrend, downtrend, and sideways conditions. Predicting market style rotations ahead of time is often difficult. Facing the ebb and flow of growth and value performance, investors need not rush to bet on which style will lead next. Instead, they can pursue more consistent long-term returns through a style allocation strategy. For those aligned with this approach, the E Fund CNI Growth 100 ETF Feeder Fund (A/C: 027858/027859) and the E Fund CNI Value 100 ETF Feeder Fund (A/C: 025497/025498) are worth attention, as they track the CNI Growth 100 Index and CNI Value 100 Index, respectively, and are available for subscription through the fund company's direct sales platform, banks, and internet channels. By configuring with these style-focused index tools, investors can carve out a more resilient path for long-term returns in an uncertain market.