MW Value investing is finally excelling again in 2025 - but there is one catch for Americans

By Joseph Adinolfi

Value stocks are outperforming virtually everywhere - except the U.S.

The concept of value investing was pioneered in the U.S. roughly a century ago. But lately, the approach has had far more success abroad.

As U.S. stocks have trailed their international rivals this year, value stocks trading abroad have exhibited a rare stretch of outperformance, handily besting their more growth-oriented U.S. rivals. Although growth stocks like Nvidia Corp. $(NVDA)$ have made a major comeback from the April stock-market low, international value equities have remained well ahead of the pack.

Their strong showing as of late recently inspired Dan Lefkovitz, a strategist at Morningstar Indexes, to quip in commentary published online that value investing appears to be working everywhere - except in the U.S.

Morningstar indexes measuring the performance of growth stocks and value stocks show that internationally, the value style has generally outperformed growth. Then again, international equity indexes tend to be more heavily slanted toward value names than U.S. indexes like the S&P 500 SPX.

                    Equity Style Indexes                  Total Compounded Return - Annualized, Five Years 
   Morningstar Global xUS Growth TME GR USD                                                          6.640% 
   Morningstar Global xUS Val TME GR USD                                                            12.663% 
   Morningstar US Large-Mid Broad Growth TR USD                                                     16.154% 
   Morningstar US Large-Mid Broad Value TR USD                                                      12.871% 
   Morningstar Europe Growth TME GR USD                                                              9.292% 
   Morningstar Europe Value TME GR USD                                                              13.792% 
   Morningstar Emerging Markets Value TME GR USD                                                    10.342% 
   Morningstar Emerging Markets Growth TME GR USD                                                    3.023% 
   Morningstar Developed Asia Pacific Value TME GR USD                                              11.534% 
   Morningstar Developed Asia Pacific Growth TME GR USD                                              4.175% 
   Source: Morningstar Direct. Data as of 6/6/2025 

But periods where international value stocks have bested U.S. growth stocks are much less common.

"If international value beats U.S. growth this year, it will be the first calendar year since 2022 that this has happened. Before that, you'd have to go back to 2016," Lefkovitz told MarketWatch.

The last time the value style outperformed, in 2022, it was something of a Pyrrhic victory. That year, a global inflationary wave battered stocks and bonds alike, leading to the worst showing for stocks since 2008.

Back in 2016, the strong showing for U.S. value was largely driven by strength in financials and energy stocks.

What will it take for value to outperform in the U.S.?

One question on the minds of many value investors is what might it take for this relative strength to translate back to the U.S.?

It is probably worth pointing out that the strong showing for international value comes with an asterisk. Whether the value factor is outperforming because more investors are embracing stocks with more attractive valuations, or because of macro factors like a weakening U.S. dollar, is unclear.

When international stocks outperform, the value style tends to do well, largely because these markets are more heavily concentrated in value names.

But there are some signs that investors have been looking for bargains abroad. Brian Chingono, director of quantitative research at Verdad Advisers, pointed out that while the rally among European stocks was initially led by the biggest, most visible companies - especially defense stocks - the upswing has continued among small caps.

The MSCI Europe Small Cap Value Index has gained nearly 12% so far in 2025, according to FactSet data. That's better than the 8.9% return in local-currency terms for the broader MSCI Europe Index (MPEM25). Translating these returns into the U.S. dollar gives them an added boost. The euro $(EURUSD.FOREX)$ has appreciated by more than 8% against the dollar in 2025, with one euro trading at $1.15 as of Wednesday. Small-cap value has done well in Japan also.

"Value internationally is having a strong showing," said Brian Chingono, director of quantitative research at Verdad Advisers. "And in the U.S., value outperformance will likely follow over time."

U.S. value has already seen a few brief glimmers of outperformance in 2025, mostly earlier in the year, when Big Tech stocks like Nvidia struggled after the DeepSeek-inspired selloff in January. That allowed more value-oriented sectors like utilities and consumer staples to briefly take the lead.

Value stocks generally have lower price-to-book ratios than their tech-focused peers. Price-to-book measures the price of a stock against the value of a company's net assets, and is widely used when classifying stocks a either value or growth.

Although the value style has largely trailed growth since then, some U.S. value names have done quite well in 2025. Kevin Dreyer, co-CIO of value at Gabelli Funds, noted that Berkshire Hathaway $(BRK.B)$ $(BRK.A)$ has outperformed the S&P 500, even as CEO Warren Buffett, a paragon of value investing, has announced plans to retire at the end of the year.

Philip Morris International $(PM)$, the purveyor of popular Zyn nicotine pouches, has also tallied sizable returns.

As for what might inspire stronger performance for value stocks as a whole, Dreyer said a pickup in corporate dealmaking activity could be an important factor.

"From our perspective, one of the things that could help is that the value names tend to benefit from M&A a lot," Dreyer told MarketWatch.

Should doubts about corporate investment in artificial-intelligence creep back into markets, like they did earlier this year, it could create another opportunity for value stocks to pull ahead, Chingono said.

-Joseph Adinolfi

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

June 11, 2025 13:23 ET (17:23 GMT)

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