Michael Jamison, Portfolio Manager
June 4, 2021
It is no secret that growth stocks have been hot for the past decade, but a combination of factors has recently put value back at the forefront. According to Bank of America’s Global Research Team (Figure 1), the current value cycle is roughly 8 months old. Following are a few reasons why we believe the cycle may continue well into the future.
Value Was Down But Never Out
The perception among growth advocates is that value investing was “out.” The reality is that value investing was simply “down.” Over the past 10 years, the Russell 1000 Growth index (RLG) has seen returns of +19.8% while the Russell 1000 Value index (RLV) has seen a +13.9% return during the same timeframe1. Considering how unfavorable market conditions have been during the past decade towards value stocks, a return of +13.9% is nothing to wince at.
Continued Steepening of the Yield Curve
U.S. Treasuries saw some of the sharpest moves in quite a while during the first part of 2021. Low interest rates tend to have a negative effect on value stocks while bringing a positive effect to growth stocks. As the yield curve steepens, many investors are left wondering what the impact will be on long-duration and riskier assets such as growth stocks.
Value Has Historically Outperformed Growth
While Growth has led the way for the past decade, Value has netted investors greater returns over the long-haul. In fact, if one were to have invested $1 each in value and growth stocks in December 1927, the value investment would today be worth nearly 18 times the growth investment2.
The continued recovery of the U.S. economy should positively impact many businesses. As investors, it is important to seek out companies with intrinsic value that are positioned to benefit from an improving economy and capitalize on the changing market conditions.
1. https://www.kiplinger.com/investing/602611/will-2021-be-the-year-for-value-stocks
2. https://anchorcapital.com/growth-vs-value-historical-perspective/
All material of opinion reflects the judgement of Adviser at this time and are subject to change. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services.