Value investing is finally excelling again in 2025 — but there is one catch for Americans

Value stocks are outperforming growth stocks internationally in 2025, a trend that has not been mirrored in the U.S. market, where growth stocks, particularly in the tech sector, continue to lead; Morningstar data shows that international value has outperformed international growth by approximately 6% annualized over the past five years, while US growth has outperformed US value by approximately 3% annualized over the same period. Experts suggest that a weaker U.S. dollar and increased M&A activity could potentially catalyze a similar resurgence for value stocks within the U.S., with small-cap value stocks in Europe and Japan already demonstrating strong performance.

Analysis

Value investing is demonstrating significant outperformance internationally in 2025, a stark contrast to the U.S. market where growth strategies, particularly in technology, maintain leadership. Data from Morningstar Indexes highlights this divergence: the Morningstar Global xUS Value TME GR USD index shows a five-year annualized total compounded return of 12.663%, substantially exceeding the 6.640% return of its global ex-U.S. growth counterpart. Conversely, in the U.S., the Morningstar US Large-Mid Broad Growth TR USD index returned 16.154% annualized over five years, outpacing the 12.871% from the U.S. value equivalent. The outperformance of international value over U.S. growth is infrequent, last occurring in 2022 and 2016. This trend in 2025 is partly attributed to international equity indexes being inherently more value-tilted and potentially a weakening U.S. dollar, with the euro appreciating over 8% against the dollar in 2025, thereby boosting returns for U.S. investors in European assets. Strong performance in European small-cap value, with the MSCI Europe Small Cap Value Index gaining nearly 12% in 2025, and similar strength in Japanese small-cap value, suggest investors are actively seeking bargains abroad. Within the U.S., certain value stocks like Berkshire Hathaway Inc. and Philip Morris International Inc. have shown resilience, outperforming the S&P 500. Catalysts for a broader U.S. value resurgence could include increased M&A activity, which historically benefits value names, or a shift in market sentiment away from concentrated AI investments, similar to the brief period earlier in 2025 when value-oriented sectors like utilities and consumer staples led.

Key Decisions for Investors

• Investors should consider increasing exposure to international value equities, given their current outperformance and strong five-year annualized returns, such as the 12.663% for the Morningstar Global xUS Value TME GR USD.
• Monitor for potential catalysts that could drive a U.S. value recovery, including a pickup in corporate M&A activity or a rotation away from mega-cap growth stocks, as U.S. value has shown brief outperformance periods in 2025.
• Factor in currency movements, as the U.S. dollar's recent weakness has amplified returns from international investments and may continue to influence relative performance.
• Re-evaluate portfolio diversification, especially if heavily concentrated in U.S. growth, considering that international value markets, such as European small-caps (up nearly 12% in 2025), are showing distinct strength.