Temporary change or permanent shift?
Some may view the pandemic as having served as a minor shift in market leadership, with growth primed to regain its position. Inglis-Jones said European equity markets in general are no longer cheap and are actually looking expensive relative to history. However, this does not spell doom for value.
There are three reasons for this. First, the majority of stock markets high valuations is attributable to the expensiveness of growth and quality stocks. Value stocks by contrast, despite the strong rally of recent months, are still priced cheaply relative to history.
Second, value stocks now have momentum. A year ago, making a value bet in a portfolio meant a negative bet on momentum as the strong momentum cohort was dominated by growth stocks. This is no longer the case today indeed our portfolios have strong biases to both value and momentum, whereas a year ago the momentum bet was strongly negative.
This is a development in the world of factor investing that has not occurred for a number of years and is highly positive for values prospects - we noticed that when value stocks also carry a strong momentum signature we were unable to find in the history a period when value did not perform strongly.
Finally, we would point to the sheer scale of the underperformance of value in the last decade. Value has a lot of catching up to do as the chart above makes clear. Whilst it may seem as if value stocks have had a strong six months, they have merely begun to mend the devastating performance they have delivered to investors in recent years.
Continued here:
Anatomy of a value rally: seven signs it has further to run - citywireselector.com
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