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7/30/2019 Growth Value 1
1/15
2008 Morningstar, Inc. All rights reserved. 3/1/2008LCN200803-2013997
Growth and Value Investing
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Equity Investment Classification
2008 Morningstar, Inc. All rights reserved. 3/1/2008
Large-cap
9,500 Mutual funds 283 Stocks
Mid-cap
2,486 Mutual funds
701 Stocks
Small-cap
2,066 Mutual funds
4,908 Stocks
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What are Growth and Value Stocks?
2008 Morningstar, Inc. All rights reserved. 3/1/2008
Growth stocks
High growth rate of earnings, sales Low book-to-price, high price-to-
earnings ratios
Paying lower or no dividends
Risks
Future growth does not occur as
expected
Book-to-price ratios rise unexpectedly,
price-to-earnings ratio decline
unexpectedly
Value stocks
Slower growth of earnings and sales High book-to-price, low price-to-
earnings ratios
Higher dividend yields
Turnaround opportunities
Risks
Evaluation of stocks as good value is
misread
Difficult to stick to value policy when
prices are beaten down
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Risk and Return by Size and StyleGrowth and value stocks 19692007
Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannotbe made directly in an index. 2008 Morningstar, Inc. All rights reserved. 3/1/2008
Large value
Mid value
Small value
Large growth Mid growth Small growth
14
12
10
8
16% Compound annual return
15%Standard deviation
17 19 21 23 25 27
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Range of Annual ReturnsGrowth and value stocks 19692007
Past performance is no guarantee of future results. Each bar shows the range of compound annual returns for each asset class over the period19692007. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 2008Morningstar, Inc. All rights reserved. 3/1/2008
60% Return
40
20
0
20
40
Large growth Large value Mid growth Mid value Small growth Small value
47.6%
32.4%
39.4%
22.1%
10.8%
51.3%
33.0%
9.7%
61.2%
20.8%
13.6%
60.5%
40.6%
9.1%
58.3%
24.4%
14.8%Compoundannual return:
9.2%
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Growth and Value Investing19692007
Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of 1969. Assumes reinvestment of incomeand no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly inan index. 2008 Morningstar, Inc. All rights reserved. 3/1/2008
14.8%10.89.29.1
Compound annual return
Small value Large value Large growth Small growth
$220.84
$55.22
$31.02$29.69
$1,000
100
10
1
0
1969 1975 1981 1987 1993 1999 2005
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Growth and Value Investing19982007
Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of 1998. Assumes reinvestment of incomeand no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly inan index. 2008 Morningstar, Inc. All rights reserved. 3/1/2008
$1.53
$1.75
$1.84
$2.79
10.8%6.35.84.3
Compound annual return
$5
0.7
1
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Small value Large value Small growth Large growth
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One-Year Growth and Value Cycles19692007
Past performance is no guarantee of future results. Performance differential measures the outperformance of each asset class over one another ona 12-month rolling basis. Each 12-month rolling return represents the annualized return over the prior 12 months. This is for illustrative purposes onlyand not indicative of any investment. An investment cannot be made directly in an index. 2008 Morningstar, Inc. All rights reserved. 3/1/2008
12-month rolling returns
40%
30
20
10
Large growth Large valuePerformance differential
75%
50
25
0
25
1969
JanDec
1974
JanDec
2004
JanDec
1999
JanDec
1994
JanDec
1989
JanDec
1984
JanDec
1979
JanDec
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Three-Year Growth and Value Cycles19692007
Past performance is no guarantee of future results. Performance differential measures the outperformance of each asset class over one another ona 36-month rolling basis. Each 36-month rolling return represents the annualized return over the prior 36 months. This is for illustrative purposes onlyand not indicative of any investment. An investment cannot be made directly in an index. 2008 Morningstar, Inc. All rights reserved. 3/1/2008
Performance differential
36-month rolling returns
Large value Large growth
0
25
50%
5
10
15
20
25%
2006200119961991198619811976Dec 1971
2004199919941989198419791974Jan 196925
0
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Growth and Value by DecadeCompound annual rates of return by decade
Past performance is no guarantee of future results. *Based on the years 1928
1929. **Based on the years 2000
2007. This is for illustrativepurposes only and not indicative of any investment. An investment cannot be made directly in an index. 2008 Morningstar, Inc. All rights reserved.3/1/2008
1920s* 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s**
20
15
10
5
0
5
Growth stocks
Value stocks
25% Return
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Moving With the MarketAnnual performance comparison 19882007
Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannotbe made directly in an index. 2008 Morningstar, Inc. All rights reserved. 3/1/2008
Large growth Large value S&P 500
50%
40
30
20
10
0
10
20
30 2006 20071988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
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Bull Market PerformanceBooming 1990s: 19951999
Past performance is no guarantee of future results. Hypothetical value of $1,000 invested at the beginning of 1995. This is for illustrative purposesonly and not indicative of any investment. An investment cannot be made directly in an index. 2008 Morningstar, Inc. All rights reserved. 3/1/2008
$4,500
3,500
2,500
1,500
500
1995 1996 1997 1998 1995 1997 19981999 19991996
Growth Value
Small growth:
Compound annual return:
17.6
Mid growth: 23.2
Large growth: 34.4%
$4,379
$2,842
$2,249
Compound annual return:
Large value:
Mid value: Small value:
24.8%
17.716.4
$3,033
$2,258$2,136
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Bear Market PerformanceEarly 2000s bear market: July 2000December 2003
Past performance is no guarantee of future results. Hypothetical value of $1000 invested at the beginning of July 2000. This is for illustrativepurposes only and not indicative of any investment. An investment cannot be made directly in an index. 2008 Morningstar, Inc. All rights reserved.3/1/2008
$1,800
1,400
1,000
600
200 July2000
July2001
July2002
July2003
July2000
July2001
July2002
July2003
Small growth:
Compound annual return:
5.8%
Mid growth:
7.3 Large growth: 14.5
$577
$767$812
Compound annual return:
Large value:
Mid value:
Small value:
0.913.7
16.5%$1,705
$1,568
$969
Growth Value
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Blending Growth and Value
2008 Morningstar, Inc. All rights reserved. 3/1/2008
Balance growth investments with those that produce income
Invest in both large and small companies, as well as a mix of well established and newcompanies
Consider investments that are currently out of favor but have potential to increase in
value
Blending effectively may cushion against the many ups and downs in the market
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Style Winners and Losers19982007
Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannotbe made directly in an index. 2008 Morningstar, Inc. All rights reserved. 3/1/2008
Highestreturns
Lowestreturns
20071998 1999 2000 2001 2002 2003 2004 2005 2006
Large growth
(LG)
Large value
(LV)
Mid growth
(MG)
Mid value
(MV)
Small growth
(SG)
Small value
(SV)
Diversified portfolio
(DP)
12.1
LG
8.7
MG
7.4
SG
4.1
DP
2.5
LV
0.4
MV
5.6SV
47.6%
LG
16.6
LV
10.7
DP
6.4
MG
2.3
SG
0.8
MV
4.1SV
51.3
MG
39.3
SG
29.8
LG
23.2
DP
13.1
LV
4.8
MV
4.6SV
25.4
MV
22.7
SV
3.0
LV
3.4
DP
18.5
MG
22.0
LG
22.6SG
14.8
SV
3.9
MV
0.4
SG
2.9
DP
7.2
MG
8.8
LV
20.1LG
12.8
MV
13.3
SV
19.8
DP
20.1
LV
21.5
MG
23.9
LG
27.8SG
48.4
SG
47.9
SV
43.9
MV
40.3
MG
39.0
DP
29.9
LV
24.8LG
21.1
SV
20.8
MV
19.6
SG
15.8
DP
13.4
LV
13.1
MG
6.7LG
14.0
MV
9.2
SV
8.8
MG
7.9
DP
7.0
LV
4.7
SG
3.3LG
23.2
SV
22.1
LV
15.3
DP
13.9
MG
13.0
MV
10.8
SG
8.9LG