ETF Central

Growth VS Value: Assessing Stock Worth

In the heady world of investing, one can observe many different trading styles. Both individuals and companies will tend to build portfolios based on their own personal stock preferences; picking and choosing a mixture of stocks based on both their present and anticipated values.

Explaining Growth and Value

Within the field are two distinct types of stock; growth and value. Surprisingly, many investors are unaware of the actual difference between the two. This may well be because the terms ‘growth’ and ‘value’ don’t technically refer to the immediate value or behaviour of a stock. Neither do they refer to the value of ownership which the buyer will receive upon purchase. Instead, ‘growth’ and ‘value’ refer to a style of investment which is based upon the anticipated risk of purchase.

Which Stock Type is Preferable?

Growth stock tends to be associated with high-yield, profitable companies whose growth is expected to continue rising at an above-average rate. Growth stock is rarely a risky move, and generally tends to yield return over time. By contrast, value stock may have low value at present, and can be bought for rock bottom prices. However, value stock is generally bought because the investor believes that the true worth of the company has yet to be recognised in the global market, and that share prices will, in the future, increase exponentially. Value stock is more risky than growth stock, but it’s worth remembering that, at one point, even shares in Google would have been considered value stock.

Put simply, it’s impossible to determine whether or not growth stocks are intrinsically ‘better’ or more valuable than value stocks. Investment purchasing decisions should always be made in conjunction with a thorough assessment of the market, company, and of your own portfolio requirements.

Earning Driven VS Value Driven Analysis

Despite the ease at which many investors tend to divide stock into either growth or investment, one individual prefers to step away from this classification. According to Forbes, US investment billionaire Warren Buffet is known for assessing stock value on company growth and earning over time, including return on equity and retained earnings, free cash flow and debt. For Buffet, earnings can be both quantified and qualified.

Other Investment Types

Growth and value investment styles are not particular to any one market, but purchasing decisions must be amended to reflect the specifics of the particular market you are dealing in.

There is, however, one trading market in which growth and value stock investment styles cannot be fully replicated; Forex. Currencies, freely traded, cannot be described in the same way that company stock can, and therefore investment style must be developed in accordance with Forex principles. For investors without prior knowledge of Forex, it’s advisable that learning be undertaken in conjunction with an array of readily available research tools, which will allow you to develop a style suitable for this market.

With 2012 drawing to a close, many of us will have already turned our focus to next year’s strategy. With this in mind, there are several ETFs that have drawn quite a bit of attention this year, and are definitely worth looking at as we move in to Q1 of 2013.

1. Global X FTSE Nordic Region ETF (GXF) – Many of the Nordic ETFs performed very well in 2012, including both this one and the Global X Norway ETF (NORW). They are generally seen as a safer bet for investment than much of the rest of Europe, as the Scandinavians and Finland enjoy relative security. GXF has managed an impressive 24 percent rise year on year, and with these countries still holding triple-A credit ratings, the outlook looks good for 2013. Be aware however, that Norway is heavily reliant on its oil industry, so we could see some volatility.

2. iShares MSCI Belgium Capped Investable Market Index Fund (EWK ) – Straight out of left-field is this Belgian offering. While the country had credit ratings slashed in 2011, and is not the first stop for stability, this particular ETF was also boosted around 24 percent this year. Improvements in the average Belgian wage are likely to rally this ETF through 2013, in addition to an extremely successful year for Anheuser-Busch InBev. This particular stock comprises of nearly a quarter of EWK’s value, and enjoyed a 44 percent improvement this year. With nearly $6bn in 2011 profit, we see no reason for the beverage company to slow down any time soon.

3. PIMCO Total Return Exchange-Traded Fund (BOND) – This ETF hasn’t even been around for a year yet, having been created back in February, but it’s already clear that it could be a star in the making, enjoying an increase of more than 7%. With nearly $4bn in assets, this is the largest actively managed ETF in the world, and has well outmatched its mutual fund brother, Bill Gross’s famous Total Return Fund.

4. Market Vectors Morningstar Wide Moat Research ETF (MOAT) – Another new ETF, and a sturdy performer in 2012, this ETF focuses on moat companies; those that have a huge lead over competitors. It’s certainly a niche ETF, with just 21 stocks in these kinds of companies, but you can’t argue with a rise of nearly 7 percent. Facebook comprises a significant chunk of this ETF, which could potentially prove to be a weakness in 2013, depending on the company’s fortunes.

5. iShares MSCI Germany Index Fund (EWG) – Possibly one of the riskier ETFs on this list, EWG rose by around 27 percent this year, but 2013 performance hangs in the balance. Should markets like China make some headway, and the Eurozone improve, it is likely that we’ll see a very strong showing from Europe’s powerhouse. German experts are warning of the potential for recession however, so as with European forex currency trading it might be worth seeing how things play out in Q1 first. It all depends on how much faith you’ve got in Europe’s ability to rise out of recession.

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