Last quarter was quietly one of the best periods for value stocks the market has ever seen. The Vanguard Value ETF (VTV) outperformed the Vanguard Growth ETF (VUG) by 13.2% in Q1, marking the second-widest spread in favor of value since 2002. However, the gap between the two funds has narrowed almost entirely over the past month as growth areas of the market reclaimed the driver’s seat. VUG was down as much as 13.9% earlier this year, but the fund has since rallied back into a column of X’s, returning to a buy signal over the past two weeks. While the fund faces resistance near its all‑time highs at $84, the overall technical picture has returned to constructive territory, supported by a 4.21 fund score.

The rebound in growth stocks has been even more notable on a relative basis, with VUG’s performance looking even more incredible when compared to VTV. One of the most consistent signals for determining whether to favor growth or value has been the RS chart between VUG and VTV. Historically, allocating to whichever fund has been on an RS buy signal has outperformed holding either fund individually. VUG has demonstrated long‑term relative strength versus the value fund since 2023, though it temporarily lost near‑term relative strength after moving into a column of O’s earlier this year. However, recent action in favor of VUG has seen the RS chart reverse back into a column of X’s, indicating that growth is once again favored in both the near- and long-term.

The resurgence in growth has also been notable for the speed of the rebound. Over just the past month, VUG is outperforming VTV by 12.2%. There have only been fifteen other instances in which VUG has outpaced VTV by double digits during the prior month, excluding clusters within a month.  Across those historical instances, market performance was generally strong, with both VUG and VTV averaging roughly a 10% one‑year return. However, these instances occurred disproportionately during periods of heightened volatility, with a wide dispersion of returns. Value stocks were more consistent in generating upside, with VTV posting positive returns 80% of the time one year later, compared to 67% for VUG. However, growth stocks exhibited significantly greater upside potential, albeit with increased downside risk. When VUG was positive after a year, it produced an average return nearly double that of value stocks, gaining 28.7%. Conversely, when VUG was negative after a year, it averaged a decline of 25.7%, compared with just 3.9% for value.

If market conditions begin to deteriorate, investors should approach growth allocations with added caution given their higher levels of volatility. However, the base case for the market continues to support the view that it remains in a bull market. Growth areas continue to lead in relative strength with few signs of slowing, while risk‑on sectors such as technology are leading the way to the upside. The weight of the evidence continues to cast a favorable light on domestic equities, especially among growth areas, suggesting they should remain an area of emphasis within portfolios until clear signs of change emerge.

As we typically do each quarter, today we revisit the debate between active and passive management by looking at how passive indices have fared across several different markets – US large cap equity, US small cap equity, international developed equity, emerging market equity, and US fixed income – over both the short- and long-term.

Q1 provided us with a good opportunity to evaluate active vs passive management as we experienced a geopolitical driven drawdown which active managers could have potentially positioned for. One of the arguments in favor of active management is that active managers will outperform in down markets. 

The key determinant of which style, active or passive, is superior is market efficiency. Market efficiency describes the degree to which asset prices quickly and rationally adjust to reflect new information. In highly efficient markets, new information is quickly incorporated into prices, and therefore it is not possible to consistently achieve above-average risk-adjusted returns in these markets. Therefore, due to their lower cost, investors are better off utilizing passive strategies in highly efficient markets. In less efficient markets, on the other hand, the opportunity exists for skilled active managers to outperform passive strategies, thereby adding value for clients.

The active vs. passive debate often focuses on large-cap U.S. equities, which is a natural starting point for the discussion – the large-cap U.S. equity market is composed of the most well-known companies in the world and represents a large portion of many retirement portfolios. However, if we stop there, we ignore what should be an obvious and fundamental element of the discussion – the various markets around the globe are unlikely to all be equally efficient. The very fact that U.S. large-cap companies are the most visible and researched firms in the world suggests that the U.S. large-cap equity market is likely to be more efficient than its less well-known counterparts! It is because of the variation in efficiency that the merits of active versus passive management should be evaluated on a market-by-market basis. 

On the surface, the debate between active and passive may seem academic. However, it has practical implications for advisors. Most importantly, you want to do what is in the best interest of your client. If your client is best served by using low-cost passive funds because active management truly doesn’t add value, then so be it. However, utilizing only passive funds eliminates one of your value propositions as an advisor – evaluating and selecting funds – and removes any possibility of outperformance, so, from a business perspective, it is probably preferable to keep at least some active management in the mix.

The tables below show the quarterly, year-to-date, and rolling five-year return rankings of several well-known indices (representing passive management). If the index ranks in the top two quartiles, then it outperformed most managers within the peer group during that period. Conversely, if the index ranks below the 50th percentile, then most active managers in that universe outperformed the benchmark. Looking at the rankings over time, we can get a feel for which markets are the most efficient, and thus are likely to favor passive management, and which are the least efficient, offering the greatest opportunity for active managers.

The earliest five-year period in our long-term rankings began in December  2016 and the most recent period ended March 31, 2026. During that time, we have experienced several different market environments and market-shaping events from the calm of 2017 to the volatility of 2020 and the tariff-driven drawdown last year. So, we have a good cross-section of market states upon which to base our conclusions.

US Large Cap Equities

The S&P 500 finished Q1 in the third quartile, suggesting that active managers had some success positioning against the drawdown stocks experienced during the quarter. While active managers have had some success against the benchmark thus year in 2026, over the long-term the S&P remains a challenging benchmark as it has finished above the 50th percentile in every five-year period in our lookback window.

US Small Cap Equities 

Like its large counterpart, the Russell 2000 finished Q1 in the third quartile of our rankings. However, unlike large caps, outperformance by small cap active managers has been much more common. The Russell 2000 has finished below the 50th percentile in every rolling five-year period in our lookback window, suggesting that active management has been additive in small caps. 

Developed International Equities

The MSCI EAFE Index finished Q1slightly below the 50th percentile of our rankings. This is in line with the longer-term trend as the index has hovered around the middle of the rankings in most rolling five-year periods, offering no clear indication of an advantage for active or passive management. 

Emerging Market Equities

The MSCI Emerging Markets Index finished Q1 near the bottom of the third quartile. This is in keeping with the longer-term trend as the index has finished below the 50th percentile in every rolling five-year period in our lookback window, indicating an advantage for active management. 

US Fixed Income

As regular readers of this report know, fixed income has provided the most reliable advantage for active management. Q1 was no exception as the Bloomberg US Aggregate Bond Index finished in near the bottom of the third quartile. In the long-term rankings, the index has finished in the bottom quartile of our rankings in every rolling five-year period in our lookback window. 

Daily Option Ideas for April 30, 2026