Growth, value or quality? The investment question of 2026

By Joss Murphy on 14 January 2026 in Global

Investment style has been an important driver of returns in recent years. While managers can and do transcend their style, it has helped determine their position in the performance pecking order. For much of the past decade, growth has outpaced other investment styles, largely driven by the performance of US technology, which evolved into an outlier with it’s own structural drivers. Value began to recover after “Vaccine Monday” in late 2020. Only quality has been a persistent laggard.

Which investment style might lead the pack in 2026?

Quality, growth and value managers will all claim that their style has the edge over the long term. In reality, the time frame is vitally important. Quality appears to have the edge over the very long-term (20 years)*. Since 30 January 1994, the MSCI World Quality index has delivered an annualised return of 11.95%, compared with just 8.8% for the MSCI World**.

More recently, growth has been where the action is – at least in the US. The Russell 1000 Growth has outperformed the Russell 1000 over 1, 3, 5 and 10 years, and in every calendar year for the past five years except 2022**. This is largely explained by its 60% weight to technology. Its largest stocks are a predictable mix of Nvidia, Apple, Microsoft, Amazon and Meta. The quality indices still have a lot of these AI names, but generally not in the same weight – Nvidia is 4.8% of the MSCI World Quality index versus 5.5% in the MSCI World, for example**.

Over the past year, value has surged ahead, particularly outside the US. For example, the MSCI Europe Value index was almost 10% ahead of the wider MSCI Europe index in 2025**. It is a similar picture in the UK and Japan, with the strength of sectors such as defence and financials giving value indices a boost. Value had been outperforming in emerging markets, but returns were more evenly distributed in 2025.

In contrast, 2025 has been dismal for quality stocks. The Financial Times said quality suffered, “one of the worst ever relative declines in developed markets, and the worst ever in emerging markets” in 2025. The MSCI World Quality index is around 5% behind the wider MSCI World index for the calendar year**. While it holds some of the technology giants, performance has been held back by higher weightings in the healthcare and consumer staples sectors, which have both been weak.

Will we see a quality revival?

Against this backdrop, the biggest question is whether quality can revive in 2026. It might depend on the market backdrop. MSCI research suggests that quality indices’ relative performance has been strongest when both growth and yields have declined. It tends to do better when the environment is choppier, and investors turn to more predictable options for revenue growth and income.

Researchers from MSCI add: “As the surge in AI-driven capital expenditure moderates, tariffs filter through global supply chains and growth indicators soften, the environment that weighed on quality performance this year may begin to ease. If slowing activity prompts further monetary easing, the environment would more closely resemble historical periods in which quality has outperformed. With its emphasis on durable profitability, disciplined balance sheets and earnings stability, the quality factor may again offer investors a resilient anchor when the cycle turns.”

Quality managers are hopeful that an environment of slower growth and heightened uncertainty will favour companies with stable earnings and strong governance. Equally, sectors such as healthcare and consumer staples now look undervalued compared with their long-term averages. Healthcare in particular has been showing signs of a turnaround in the final few months of 2025**. Should this continue into 2026, it would favour a quality approach.

In its 2026 outlook, CCLA, which manages the Better World Global Equity fund, said:

“Nobody knows what will happen to the current bull market in growth shares driven by AI. But investors are increasingly anxious about record market concentration, and AI insiders themselves are signalling that their sector might be overvalued.” It says quality shares tend to do better in a crisis, “needing less time and lower returns to recover losses sustained in these crises. In our opinion, this characteristic makes quality shares better for long-term performance.”

It adds: “Quality shares have now lagged the broader share market for five quarters in a row – for the first time in more than 15 years. That lag is testing the patience of many investors. As the relevant time periods reach five and 10 years, quality shares have outperformed the broader market 78% and 100% (!) of the time, respectively. Historically, sticking with quality has been a better strategy than walking away.”

Ian Mortimer, manager of the Guinness Global Equity Income fund, agrees: “Quality is where the opportunity is today from a valuation perspective.” He points to the consumer staples sector as an area of interest:

“It generally trades at a 10-15% premium to the broader market because these are good understandable businesses, paying reliable dividends and investors are happy to pay up for that. If that premium drops below this level, it’s generally been a good opportunity for re-rating. Today, it’s actually at a discount. Yet when we look at these businesses, they’re doing well.”

He says healthcare is a similar story – it’s been very out of favour, but has come back into favour as Pfizer agreed a deal with the US government on drug pricing.

Value and growth

Without rehashing the ‘AI bubble’ debate, it is clear that the bull market for growth stocks is increasingly mature. The MSCI World Growth index now has 46% in technology companies, with Nvidia 11.1% of the index**. That should give investors pause for thought. That said, if AI starts to deliver on its promise, with companies seeing a tangible return for their investment, growth could continue to thrive. However, there are signs the market has started to cool on these highly-valued areas over recent months.

For value investors, the outlook is more neutral. It has been a strong year, but it comes after a period of significant weakness for this style of investing. T Rowe Price, which manages the T. Rowe Price Global Focused Growth Equity and T. Rowe Price Global Select Equity funds says its view varies with different regions:

“While we are neutral on growth versus value stocks in the US, in international equities we prefer value companies. The global cyclical backdrop is improving, and sectors such as financials – heavily represented in value indices – should benefit from steeper yield curves and improving loan demand. Valuations for non US value stocks also remain relatively attractive***.

Among the various investment styles, quality remains the outlier, with its current weakness against the run of history. In particular, if the AI trend or global economic growth cools, investors may prefer the dependability of quality companies. It remains an area to watch in the year ahead.

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3 funds for value

3 funds for quality

3 funds for growth

*Source: Trustnet, 18 September 2025

**Source: index factsheet, 31 December 2025

***Source: T Rowe Price, 2026 Global Market Outlook