Value investors look for companies with a low share price relative to their peers or history, while growth investors look for stocks with the potential to rake in higher earnings than their rivals in the future.
Gleeson (pictured) says that a balanced portfolio should not be exposed to only one of these types of stock, and for better results investors need to look deeper into how the portfolio is constructed. "Value and growth will both benefit at different times in the business cycle, so you need to spread your portfolio to cover yourself," he said.
FE Trustnet recently ran a series of articles looking at diversifying styles in a portfolio to give better risk-adjusted returns.
Data from FE Analytics shows the growth and value stocks in the UK market have gone through alternating periods of outperformance over the past five years.
Performance of indices over 5yrs
Source: FE Analytics
Gleeson says that investors need a mix of both types of stock to create a portfolio to weather all circumstances, although the evidence points to value shares producing better returns.
"Interestingly, most evidence points to value outperforming growth in the longer term," Gleeson added.
"I think it’s because at the end of the day, it all comes down to price."
"The whole idea of value investing is to buy out-of-favour stocks at low prices, whereas with growth it’s more uncertain."
"You are paying a high price for uncertain future potential. It’s easier to measure cash-flow against the current price rather than future uncertainties. Plus, if you buy at a high price, that price has to go even higher."
"There are examples of growth funds with a good long-term track record, but not many."
Gleeson warns, however, that investors need to be careful about classifying funds too simply.
Many funds buy a mixture of growth and value stocks, particularly in the UK, while stocks can be classified in either way by different managers.
"It’s probably a UK thing, because UK investors are more concerned about yield and the growth/value distinction is not that big a deal," Gleeson said.
"People want decent total returns and aren’t that concerned by whether that’s through growth or value."
"In the US, lots of people are more direct equity investors so are perhaps are used to focusing on P/E ratios and other metrics."
"The other thing is there’s no clear consensus on what’s growth and what’s value." "If you talk to Barry Norris, he is investing in companies people think of as value stocks but he’s buying them as growth stocks."
"Volkswagen is an example. He invests in it as a growth stock, whereas by most specifications it would be a value stock."
"You could have a growth strategy investing in the same stocks but it’s important not to get too caught up in the distinction."
FE Alpha Manager Barry Norris is the lead manager on IM Argonaut European Alpha, a £215m fund with five FE Crowns that sits in the IMA Europe ex UK sector.
The fund has a high weighting to the stronger northern European countries of Germany, Norway and Switzerland, and has large positions in EADS, Roche, Nestle and Volkswagen.
The manager is happy to move between growth and value stocks as market momentum changes.
Norris has managed to outperform his sector and benchmark over five years during a period of crisis in Europe, returning 25.41 per cent.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
Gleeson says that to diversify strategies properly, investors need to look past a simple growth and value distinction.
"You have got to understand what the growth factors would be on a fund," he said.
"If the fund is investing in technology companies and healthcare companies, what would be the scenarios where they will do well?"
"If you look at holdings and strategies and performance, you can start to see when funds look like they are doing the same."
FE Trustnet looked at complementary styles of investing in the UK equity income, UK growth, UK smaller companies, global and Asian Pacific sectors in previous articles.