Sometimes value isn’t always easy to distinguish from growth, depending on what index you’re looking at, contends an article in CNBC. For example, most would classify Microsoft as a growth stock because of its earnings growth, but Standard & Poors recently categorized it as partially a growth stock and partially a value stock. They also just classified Meta as 100% a value stock while deeming ExxonMobil—generally considered a value stock—100% a growth stock. Chevron, ConocoPhillips, Williams, Coterra Energy, and Marathan Oil are other energy companies that S&P now considers to be pure growth stocks.

The value investor has struggled over the last decade as growth stocks mightily outperformed value and much of that money has shifted to indexing. Instead of trying to pick the best growth or value stocks, many investors simply buy mutual funds or ETFs that track indexes. But while some large growth and value ETFs such as the iShares S&P Growth and the iShares Value are based on S&P indexes, others such as the iShares Russell Growth and the iShares Russell Value are based on indexes developed by FTSE Russell, as well as the Vanguard Growth and Vanguard Value funds that use indexes created by the Center for Research in Security Prices. All of these indexes calculate growth and value in different ways, and so a value stock to one index might be partially a growth stock to another. Generally there are 3 criteria needed for classification; for growth, it’s a 3-year change in earnings per share and sales per share, as well as a 12-month price momentum. For value, those criteria are a lower book value and earning to price, in addition to lower sales to price, the article explains.

Last year’s tech rout hit growth stocks hard; factoring in price momentum for Microsoft, for example, pushed it from having 100% of its weighting in growth in 2021 to 42% weighting in value and 58% weighting in growth, according to the S&P. While S&P does have pure growth and value indexes, “the basic concept is they want the market capitalization to be split evenly between growth and value, and the only way to do that is for stocks to end up in the middle is to apportion those stocks partly to value and partly to growth,” Aniket Ullal of CFRA told CNBC. Price momentum was also a huge factor in pushing all those energy stocks into the growth camp, thanks to the price surge last year. But 2022 was extraordinarily unique, and 2023 “is the first year we have seen such a dramatic divergence in the growth and value indexes,” Ullal says. Even so, 5 percentage points separate the Vanguard Growth and iShares S&P Growth funds this year, mainly due to the S&P’s emphasis on price momentum in their calculations.

Every index advisor will have a different view on how to build an index, and there’s always been a difference of opinion about what a growth or value stock really is. In the past, highly skilled stock pickers would create mutual funds and hedge funds to lure in investors, but now indexing has dominated the investing world. While that’s opened up investment opportunities for the general public, it also puts the responsibility of picking—and understanding—stocks on the individual investors. “The most important takeaway from the performance divergence among value and growth vehicles is investors need to know what they own,” Shelly R. Simpson of Truist Advisory Services told CNBC. “Then they can determine what is driving performance and whether they remain comfortable with the positioning.”