Quality = Value

• The number of companies in the S&P 500 Growth Index has shrunk from roughly 300 in 2015 to under 140 currently, while nearly 450 companies now qualify for the Value Index
• About 60% of the Value universe now consists of higher quality companies, reversing the historical pattern where Growth contained a larger proportion of high-quality stocks
• High-quality value stocks currently offer meaningfully higher dividend yields than high-quality growth stocks, eliminating the traditional trade-off between quality and dividend income

Summary: Quality = Value

Key Findings

The U.S. equity market experienced its longest period of narrow leadership by end of 2025, surpassing even the Technology Bubble era. This extreme concentration has created unusual valuation opportunities, with leadership finally beginning to broaden in 2026.

Critical Data Points

• Historically narrow market: Approximately 90% of S&P 500 companies now qualify as value stocks
• Growth index contraction: S&P 500 Growth Index companies declined from ~300 (2015) to ~225 (2020) to under 140 currently
• Value index expansion: Nearly 450 of the S&P 500's companies are now included in the Value Index
• Quality shift: About 60% of the Value universe now comprises higher-quality companies, reversing the historical pattern where Growth contained more high-quality stocks

Market Implications

The prolonged narrow leadership has created an unusual investment environment where:

1. High-quality companies no longer command premium valuations
2. Investors can access both quality and dividend yield simultaneously—typically a trade-off
3. High-quality value stocks currently offer meaningfully higher dividend yields than high-quality growth stocks, exceeding the past decade's premium levels

Investment Strategy

RBA portfolios have positioned for market broadening, shifting toward U.S. quality, dividends, value, and non-U.S. equities. The firm believes the extreme market narrowness ignored broader earnings data across global equity markets, creating opportunities as quality stocks appear undervalued. Recent market broadening may signal investor recognition of these opportunities.

Author: Richard Bernstein, originally posted February 25