Australian value stocks are experiencing a significant resurgence, outperforming their growth counterparts, a trend potentially amplified by recent federal budget tax changes. For nearly a decade, growth stocks dominated due to low interest rates boosting future earnings valuations. However, this shift began as Australia emerged from the pandemic, with the Reserve Bank of Australia aggressively increasing interest rates to curb inflation. This rotation intensified over the past year following further RBA rate hikes. The S&P/ASX 200 value index rallied 20.2 per cent in the 2025-26 financial year, surpassing the Australian growth index by over 25 per cent – its largest outperformance in more than 16 years, according to S&P Dow Jones Indices. Value has also cumulatively outperformed growth by approximately 53 per cent over the past five years.
Value stocks are defined as those inexpensive relative to their earnings, while growth investors seek businesses with stronger earnings growth prospects. Michael Goldberg, portfolio manager of the Collins St Value Fund, noted that in a “risk-off environment,” attributing value to current earnings is easier than predicting future earnings. S&P Dow Jones Indices, a prominent provider of market benchmarks, determines ASX 200 index inclusions using metrics like three-year earnings-per-share growth and share price momentum for growth stocks. For its value index, it considers factors such as earnings-to-price and sales-to-price ratios. This allows for sector composition shifts; rising bank valuations, for example, have increased financials’ representation in the growth index, including Commonwealth Bank.
Proposed changes to capital gains tax in the federal budget have further bolstered the appeal of value stocks, given their propensity to pay dividends. From next year, individuals selling assets will pay tax on total investment gains, adjusted for inflation, replacing the current 50 per cent discount. Reece Birtles, head of Australian equities at ClearBridge Investments, stated these changes further incentivise investing for profits and income over future capital gains. Locally, growth funds were among the poorest performers in FY26. Hyperion Asset Management’s Small Growth Companies Fund declined 34.3 per cent, with its Australian Growth Companies Fund falling 29.2 per cent. ECP Asset Management’s Growth Companies Fund also saw a 27.9 per cent drop, partly driven by the “SaaSpocalypse” and fears of AI disrupting software businesses.
