Market Insights: Not All “Value” is Created Equal
Source: Piper Sandler. Data from 12/31/25 – 10/31/26. Past performance should not be taken as a guarantee of future performance.
Two Benchmarks, One Label
Investors often treat “value” as a single, well-defined segment of the market. Through the first 10 months of 2026, however, two of the most widely followed large-cap value benchmarks have told noticeably different stories. The Russell 1000 Value Index and the S&P 500 Value Index both carry the “Value” label, yet the performance gap between them has been unusually wide.
This divergence is more than a statistical curiosity. For investors who use a value index to evaluate managers, set allocations, or gauge how a value allocation is behaving, the choice of benchmark may meaningfully shape the conclusions they draw. Understanding why the two indexes have diverged starts with how each one defines value, and when it applies that definition.
Fortunate Timing in the Russell 1000 Value
The Russell 1000 Value Index benefited from what might best be described as fortunate timing. Heading into 2026, the index held meaningful exposure to semiconductor and memory stocks. These companies delivered a historic run during the first half of the year, and the Russell 1000 Value captured much of that strength.
Then came June’s reconstitution. As part of that process, FTSE Russell reassesses the style characteristics of each company in its indexes. Following their strong run, many chip and memory names were traded out of the value index. In their place, the reconstitution brought in a group of software companies, and those software names have since rallied.
The net effect was a value benchmark that participated in one group’s first-half leadership and then repositioned toward another group ahead of its rebound. Neither move reflected an investment judgment. Both were the mechanical result of index rules interacting with market movements at a particular moment in time.
Different Rules at the S&P 500 Value
The S&P 500 Value Index plays by a different set of rules. S&P Dow Jones Indices scores style using its own combination of value and growth factors, which means the same company can land in different style buckets depending on which provider is doing the classifying.
Just as important is timing. The S&P 500 Value fully rebalances its style assignments only once a year, in December. As a result, June’s reshuffle never reached it. The index did not undergo the midyear repositioning that reshaped the Russell 1000 Value, and its composition has largely reflected the style assignments set at the end of 2025.
Two indexes built to represent the same investment style can therefore hold different companies, in different weights, and change those holdings on different calendars. In most years, those differences may be modest. In a year marked by sharp moves in a handful of technology-related industries, they have been anything but.
Why Index Construction Matters
Style indexes are rules-based by design. That transparency is valuable, but it also means index returns can be shaped by methodology choices that have little to do with the underlying investment merits of a value approach. Factor definitions, reconstitution schedules, and the treatment of companies near the line between value and growth can all drive meaningful differences in outcomes.
This year’s divergence also highlights a form of concentration risk that may be easy to overlook. A meaningful portion of value index returns can be driven by a relatively narrow group of companies, including technology names that many investors may not typically associate with a value discipline. Investors who view a value allocation as a counterweight to growth-heavy, technology-concentrated benchmarks may find that the overlap is larger than expected, depending on which index they reference and when it last fully rebalanced.
Portfolio Implications
Given these dynamics, investors may want to evaluate how they define and measure value exposure. This evaluation might include:
- Understanding which value benchmark they use to assess managers, and how its methodology and rebalancing schedule differ from alternatives.
- Recognizing that a manager’s relative results may look quite different depending on the benchmark chosen, particularly over shorter time periods.
- Looking beyond the style label to the underlying holdings and sector exposures within both their benchmarks and their portfolios.
- Considering whether their managers’ decisions are driven by business fundamentals or by changes in index classification.
An Active Approach to Value
At The London Company, we do not let style-box definitions determine what we own. Our investment approach focuses on identifying high-quality businesses with sustainable competitive advantages, strong balance sheets, and attractive returns on capital, purchased at reasonable valuations. We seek companies that we believe can compound value over time, regardless of how an index provider classifies them in a given year.
Because our portfolios are built from the bottom up, they may look meaningfully different from any single value benchmark. We recognize that this differentiation can lead to periods when our results diverge from a given index, in either direction. However, we believe that anchoring decisions to business quality and valuation discipline, rather than to the timing of index reconstitutions, provides a more consistent foundation for investors over complete market cycles.
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