As 2025 begins, equity markets pose an intriguing challenge for investors. With interest rates, technological innovation and global supply chains in flux, the perennial debate between growth and value investing gains fresh urgency.

Growth strategies, focusing on rapidly expanding companies, often excel in low-interest, liquidity-rich environments. Value strategies, emphasizing undervalued companies with strong fundamentals, shine during recoveries or corrections. Predicting which will lead remains difficult.

But why choose? A hybrid approach blending value and growth could offer a versatile strategy for today’s complex markets. By combining disciplined valuation with innovation-driven growth, investors can seize opportunities across diverse scenarios—whether inflation shifts, geopolitical tensions evolve, or economic trends fluctuate.

WisdomTree’s Value and Quality Growth Strategies

To create the 50/50 core blend, we look to two specific WisdomTree strategies:

• WisdomTree U.S. Quality Growth Fund (QGRW): The strategy seeks to track the total return performance, before fees and expenses, of the WisdomTree U.S. Quality Growth Index. This market capitalization-weighted strategy focuses on 100 companies that deliver particularly strong earnings growth and quality fundamental metrics. There is an overlap between this strategy and the Nasdaq 100, but we believe in our more disciplined focus on selecting consistent quality growers instead of the venue where the stock has a primary listing for trading.
• WisdomTree U.S. Value Fund (WTV): The strategy seeks income and capital appreciation by investing primarily in U.S. equity securities that provide a high total shareholder yield with favorable relative quality characteristics. The Fund’s objective changed effective December 18, 2017. Prior to December 18, 2017, Fund performance reflects the investment objective of the Fund when it tracked the performance, before fees and expenses, of the WisdomTree U.S. LargeCap Value Index.

The combination of these two strategies leads to a strong balance of sector exposures, attractive fundamental metrics and, while limited, a nice performance history.

Figure 1: Envisioning the 50/50 Blend

Figure 2: Standardized Performance as of 12/31/24

2024: A Test

The 2024 equity market environment was very similar to 2023—putting more focus on larger companies paid off.

A drawback of simply following the momentum of large growth is that, ultimately, valuation matters. Valuation may not drive the market downward in the near term, but long-term investors know risk builds as valuation multiples rise and set a higher hurdle to clear with each earnings report.

Are the first couple of weeks of 2025 a hint toward a change in market leadership? While it’s too soon to say, as you contrast figures 3a and 3b, you might see how a blended approach is navigating this potentially different environment.

Figure 3a: Cumulative Returns in 2024

Figure 3b: A New Test as We Begin 2025

Rolling Returns to Test Consistency

In figure 4, we show that for rolling one-year periods, the 50/50 allocation to QGRW and WTV has outperformed the S&P 500 Index consistently since QGRW began trading in December 2022—albeit a limited history, but what we do have so far looks consistent.

Figure 4: Rolling One-Year Returns for a Measure of Consistency

Big Sector Deviations Can Make Investors Nervous

The 50/50 QGRW/WTV combination delivered outperformance without being too “different” from the market from a sector perspective.

Figure 5 compares the sector exposures in the 50/50 QGRW/WTV portfolio to the S&P 500 Index. There are differences, but the 50/50 blend is not making massive sector bets versus the benchmark either.

Figure 5: Sector Allocations vs. the S&P 500 Index

Managing the Risk of Overvaluation

Benjamin Graham stated, “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.”¹

The 50/50 allocation to QGRW and WTV balances exposures to premier growth stocks with the WTV value component of the strategy to mitigate the risk of seeing valuation metrics run up too high versus the S&P 500 Index benchmark. The combination yields a portfolio with a lower overall valuation than the market due to the deep discounts in WTV holdings.

Figure 6: Assorted Valuation Metrics

Shareholder Yield as a Measure of Quality

One path unprofitable companies use to stay afloat is the issuance of equity during growth modes. Small stocks, such as those in the Russell 2000 Index, exemplify this.

Profitable companies, on the other hand, have a choice in returning cash to shareholders—some choose dividends, and others choose buybacks. In the U.S. market, a lot of the largest, most profitable companies like share buybacks because executives tend to have option-based compensation.

Buybacks are also much easier to think of on a one-time basis, whereas dividends, culturally, create a future unending covenant with shareholders.²

WTV has a direct focus on companies that are reducing shares outstanding through buybacks. The 50/50 allocation to QGRW and WTV has a very similar dividend yield to the S&P 500 Index, but the share reduction yield is more than three times higher.

Figure 7: A Focus on Shareholder Yield

Top 10 Holdings: Connecting the Strategy Back to Companies

People connect with recognizable company names.

Figure 8 shows both the 50/50 allocation to QGRW and WTV and the S&P 500 Index have exposure to the Magnificent 7³ stocks within the top 10 at similar weights, although the blend does tend to trim down the exposures to the largest positions, such as Apple and Nvidia.

We have seen investors looking to at least trim the concentrated risk they see in the largest companies as we start 2025.

Eight out of the top 10 holdings are actually the same. Eli Lilly & Co. and Visa are the different positions within the 50/50 blend, whereas Berkshire Hathaway and JPMorgan Chase & Co. are the different positions within the S&P 500 Index.

Figure 8: A Top 10 Holdings Similar to the S&P 500 Index

Conclusion: Value and Growth as Opposed to Value OR Growth

As you look toward 2025 and wonder whether value or growth will have the potential to run, we’d simply note that the discussion can very easily shift to value and growth from value or growth. This combination creates a better core, and we believe it has attractive characteristics to continue adding value.

¹Source: This concept is widely attributed to Benjamin Graham, but the precise wording does not appear in such books as The Intelligent Investor or Security Analysis. It is likely something he said in some of his lectures.

²While dividends are by no means “guaranteed,” we use the words “unending covenant” because the investing public creates an expectation that dividends must at least be maintained and, better yet, grown incrementally. Cutting a dividend tends to be seen very negatively by investors in U.S. equities, even if they understand this to be an ever-present risk.

³Magnificent 7 refers to Amazon.com, Apple, Alphabet, Microsoft, Meta Platforms, Nvidia and Tesla.