Did ASX value shares or growth shares do better in FY23?

Which was the better bet in FY23?

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Key points

  • ASX value shares did better than ASX growth shares in FY23 
  • The S&P/ASX 200 Value Index is up 8.32% in FY23 based on price returns alone and 13.55% with dividends included 
  • The S&P/ASX 200 Growth Index is up 6.64% based on price returns alone and 11.39% with dividends 

ASX value shares and growth shares both went up in FY23, but value stocks did a bit better.

The S&P/ASX 200 Value Index is up 8.32% in the financial year to date. If you take dividends into account, the total return for FY23 is 13.55%.

The S&P/ASX 200 Growth Index is up 6.64%. The total return, with dividends, for FY23 is 11.39%.

ASX value shares are generally mature blue-chip companies with consistent profitability and stable revenue streams, which means more reliable dividends.

ASX growth stocks are typically younger companies with loads of promise that are yet to deliver sustainable profits, like tech stocks.

As the financial year draws to a close today, let's consider why value shares were the better bet in FY23.

Why did ASX value shares win out?

The era of high capital growth may be over

Veteran Wall Street fundie Rupal Bhansali has been a trader for more than 30 years.

She sounded a warning bell for investors in FY23, saying it's time to "reposition portfolios from growth to value" because higher interest rates will mean dividends will form a greater component of overall returns.

Australian fundie Michael O'Neill of Investors Mutual agrees, saying capital growth will likely be lower for ASX shares over the next decade, making dividends "critical".

ASX value shares are well known as better dividend payers than ASX growth shares.

This is because growth companies are at a younger stage in their business development and are more inclined to retain their profits for reinvestment.

Dividends boosted overall returns

The returns of the value and growth indexes back up what Bhansali and O'Neill are saying about dividends.

Value stocks delivered 1.68% higher price growth and 0.48% higher dividend returns in FY23.

Dividends made up 5.23% of value shares' total returns and 4.75% of growth shares' total returns.

Flight to safety

It's not uncommon to see investors adopt a 'flight to safety' mentality when there's economic upheaval.

The higher growth rate in the prices of ASX value shares in FY23 indicates this may be occurring.

As we all know, the market is a pretty emotional and panicky beast.

When people are feeling uncertain, those boring old reliable ASX shares like banks, miners, or energy producers look much more appealing than the young exciting tech stocks that don't pay dividends at all.

The ASX 200 overall in FY23

The S&P/ASX 200 Index (ASX: XJO) looks set to finish FY23 up about 9.5% for the year.

The benchmark index is at 7,191.5 points in late afternoon trading on Friday.

Motley Fool contributor Bronwyn Allen has positions in Australia & New Zealand Banking Group Limited, BHP Billiton Limited, Commonwealth Bank of Australia, and Westpac Banking Corporation. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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