The Duration of Value and Growth – Much closer to each other than you’d guess

GMO

Ben Inker

Research

9 Pages

GMO explores the duration characteristics of value versus growth stocks, arguing that growth equities behave like long-duration assets while value stocks are shorter duration and more sensitive to near-term cash flows. The paper suggests that extreme valuation spreads and rising rates could pressure long-duration growth, especially after a period where growth dramatically outperformed.

Key Takeaways

Duration Gap Significant: Growth stocks exhibit durations exceeding 30–40 years, compared to ~10–15 years for value stocks, making them more sensitive to discount rate changes.
Valuation Spread Extreme: The valuation gap between value and growth ranks in the top decile historically, exceeding levels seen in prior cycles like 2000.
Rate Sensitivity Impact: A 1% increase in real rates could reduce growth stock valuations by 20%+, while value stocks show materially lower sensitivity.
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