Value Investing in 2025: Dead or Due for a Comeback?

According to Morningstar Direct data, growth stocks have outperformed value over the trailing 15-year period, but value briefly led in the first quarter of 2022—when the U.S. Large Value Index beat its Growth counterpart by nearly 15 percentage points—and again in January 2025, when value returned 4.5% versus 3.9% for growth. Many investors have started to wonder if the strategy is simply outdated—or if current conditions are quietly setting the stage for its return.

Key Takeaways

• Value stocks historically outperform during periods of rising rates, inflation, or recession risk.
• Prolonged dominance of growth stocks has created valuation concentration, especially in tech-heavy indexes.
• Behavioral biases may lead investors to chase momentum and ignore valuation fundamentals.
• Some investors use blended strategies—such as factor ETFs or multi-style portfolios—to capture both value and growth exposure.

Why Value Looks Broken—But Isn’t

Value investing, at its core, seeks to buy undervalued assets with strong fundamentals. But since the 2010s, many of those companies—industrial firms, financials, and legacy brands—have lagged growth counterparts like tech and AI-focused businesses. This has led to the widespread view that value strategies no longer work.

Yet that narrative ignores macro context. Historically, value outperforms when interest rates rise, as future cash flows become less attractive relative to near-term earnings.

• Hypothetical: Imagine an investor in 2021 who exited all value holdings, convinced they were dead weight. When markets declined in 2022, that same investor might have missed the relative resilience of value stocks—especially in energy and industrial sectors.

What’s Driving the Disconnect?

The dominance of a few mega-cap growth companies has skewed the market. As of December 2024, just eight companies accounted for 34% of the S&P 500’s total market value. Many of these are high-growth tech firms. This creates two issues:

• Index investors get more growth exposure than they realize.
• Value strategies look weaker by comparison, even when fundamentally sound.

Compounding this, investors often suffer from recency bias—overweighting recent returns and underestimating the potential for mean reversion. As a result, value names get overlooked just when they may be best positioned for a rebound.

The Role of Inflation and Rates

Value stocks often benefit from environments where inflation is sticky and borrowing costs are elevated. That’s because these companies tend to have stronger balance sheets, lower reliance on speculative funding, and pricing power in essential sectors.

Across cycles—from the 1970s oil crisis and the late-1990s tech bubble to the post-2008 recovery—value investing has often outperformed growth when evaluated over complete market cycles. During 2022’s inflation spike, defensive sectors such as energy, healthcare, and consumer staples—and value styles generally—outperformed broader benchmarks.

However, these windows tend to be brief, and investors need to be cautious not to overcorrect. Value outperformance is cyclical, not constant.

Behavioral Traps: Why Many Investors Abandon Value Too Soon

Many investors give up on value at the wrong time—either due to fear, impatience, or a lack of flashy returns. This often results in:

• Buying growth at elevated valuations
• Selling value before recovery
• Chasing performance rather than positioning for reversion

These behaviors can erode portfolio resilience. A balanced approach that includes value exposure—especially when growth becomes stretched—may help manage risk over the long term.

Volatility Has Become the New Value—for Better or Worse

While value investing still has its champions, the modern trader increasingly favors speed, movement, and optionality. Volatility, once seen as a risk, is now embraced as opportunity—especially among day traders and options players.

Why volatility attracts today’s market participant:

• More price action means more chances to profit in short windows.
• Faster gains make short-term bets more appealing than slow-compounding value plays.
• Options strategies thrive on volatility, allowing bets in either direction.
• Algorithmic trading and platforms with zero-commission access have made frequent trading frictionless.

But higher volatility also brings greater downside risk. Without discipline, stop-loss strategies, or emotional control, it can magnify losses just as quickly as it enables gains.

On top of that, low dividend yields reduce the traditional appeal of value stocks. The S&P 500 currently yields around 1.24%—well below the long-term average of 1.82% (YCharts, 2025). With income generation diminished, the "wait-and-collect" approach of value investing feels less compelling.

This chart tells a broader story: the more top-heavy the market becomes, the more value tends to lag. Concentration in mega-cap growth names isn’t just distorting diversification—it’s reshaping strategy preferences.

Some now compare value investing to gold or silver: occasionally in vogue, briefly outperforming, but often overshadowed by flashier momentum themes. It may not be dead—but it no longer dominates the conversation.

What to Watch in 2025

While no one can predict timing, there are signs the environment may be shifting:

• Persistent inflation and interest rate volatility
• Increased scrutiny on tech valuations
• Growing investor interest in dividend-paying or income-generating assets

Some investors are exploring factor ETFs or smart beta funds that tilt toward value while maintaining diversification. Others are reassessing sector exposures to ensure they’re not overly concentrated in growth-dominated areas.

A clear signal may never arrive—but the case for value doesn’t depend on perfect timing. It hinges on discipline, time horizon, and risk tolerance.

Many investors may benefit from periodically checking whether their portfolios are still aligned with long-term goals—not just recent performance.