S&P/Barra Indexes -- Description
Part 1 | Part 2 - Index Composition | Part 3

Companies in the growth index have higher market capitalizations on average than those in their associated value index. As a result, in each case there are many more companies in the value index than the growth index.

Generally, the companies in the value index also exhibit characteristics associated with "value" stocks: lower price-to-earnings ratios, higher dividend yields, and lower historical and predicted earnings growth. Surprisingly, from September 1993 through January 1994 the Price/Earnings Ratio for the S&P 500/Barra Value Index based on twelve month trailing earnings is higher than that of the S&P 500/Barra Growth Index. This was because several very large companies in the value index (e.g., General Motors) had recently reported large losses. These losses were sufficient to push the P/E ratio of the Value Index temporarily above that of the growth index.

In each case, the value index tends to be more heavily concentrated in the Energy, Utility, and Financial Services sectors than its growth counterpart and the full index. Likewise, the growth index is usually more heavily weighted in the Consumer Non-Cyclicals and Technology sectors than its corresponding value index and the full index.

Similarly, the beta of growth index is generally larger than that of the value index. This implies that the growth indexes will outperform value in periods where the full index has positive excess return (i.e. return net of the return on treasury bills) and underperform when the full index has negative excess return.

There appear to be clear periods when either growth or value style is favored in the equity market. For example, The S&P 500/Barra Value Index clearly dominated over the ten year period between 1975 and 1984.

Part 3 - Construction Methodology