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Long Live Value Investing

As rates rise, value stocks may be ripe for a comeback.

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Growth stocks have crushed value stocks over the past decade: The Morningstar US Growth Index has an annualized return of 12.4% through August, compared with 9.3% for the Morningstar US Value Index. The difference is particularly pronounced over the past year: 30.5% versus 14.7%. Is it time for a turnaround? I spoke with two top value managers who believe that rising interest rates may finally reverse that dynamic. We explored what that might mean at a sector, market-cap, and global level.

David Green, principal at Hotchkis & Wiley, is a portfolio manager on two funds that are Morningstar Medalists, Hotchkis & Wiley Small Cap Value (HWSIX) and Hotchkis & Wiley Value Opportunities (HWAIX). Charles Pohl, chairman and chief investment officer at Dodge & Cox, is a member of the investment committees running five Gold-rated funds, including Dodge & Cox Global Stock (DODWX). Our conversation took place on Aug. 23 and has been edited for length and clarity.

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Kevin McDevitt does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.