Displaying items by tag: value

2024 has continued 2023’s trend of growth outperforming value. YTD, the iShares S&P 500 Growth ETF (IVW) is up 15%, while the iShares S&P 500 Value ETF (IVE) is up only 6%. For many investors and portfolio managers, this presents an opportunity to increase exposure to high-quality, value stocks. 

NewEdge Wealth CIO Cameron Dawson sees risk with many growth stocks given ‘nosebleed valuations’. However, he believes that there are value stocks with strong balance sheets and cash flow that still have growth potential, specifically in semiconductor supply chain stocks, and older growth stocks that have now matured into value stocks like eBay or Broadcom.

Another approach is to look at ‘unloved sectors’. Examples include utilities, materials, financials, and energy. These have underperformed in the last couple of years amid an environment of higher rates and decelerating global growth. If financial and economic conditions start to improve, then these sectors could enjoy strong rallies. Housing is another interesting area for value investors, given strong fundamentals due to demographic-driven demand and limited supply in addition to attractive valuations. 

According to history, small-cap value stocks tend to outperform during this part of the market cycle. Eric Leve, the CIO of Bailard, sees the next group of AI winners emerging from this category with particular upside in software-as-a-service and cybersecurity stocks. 


Finsum: Value investing is certainly out of favor given the massive outperformance of growth over the last few years. Yet, many investors and portfolio managers see this as an opportunity to increase exposure and de-risk and diversify their portfolios.

Published in Eq: Value
Friday, 08 March 2024 05:06

Will Value Outperform Growth in 2024

Growth has consistently outperformed value since the Great Recession. For a while, this was attributed to the Fed’s dovish policies, however this has now continued even during this period of substantially higher rates. 

 

There are some indications that investors should consider rebalancing between value and growth to maintain diversification, since they may be overexposed following growth’s significant outperformance over the past year. In reality, the opposite is happening as inflows are heavily skewed towards technology. 

 

Over the past year, net inflows into technology ETFs amounted to $18 billion which is nearly equivalent to net outflows in all other sector ETFs. This is also exacerbated by the massive size of the largest 7 technology companies which have become dominant in market-cap weighted indices. 

 

Another reason to consider value is that it would likely outperform in adverse market conditions given lower multiples and less froth. This could be a prudent choice for investors who are on the sidelines but wary of risks like a recession or inflation. 

 

Additionally, value tends to do well following periods of froth in markets. For instance, value outperformed in the years following the bursting of the dotcom bubble and the frenzy in equity markets during the pandemic. If valuations revert to the mean, then it could also set the stage for a value renaissance. During these periods, the best performing stocks tend to produce high levels of free cash flow relative to their market caps while maintaining strong balance sheets. 


Finsum: Value underperformed growth by a significant degree over the past year, continuing the prevailing trend of the last decade. Here’s why investors should consider increasing exposure to value ETFs. 

Published in Eq: Value
Monday, 04 March 2024 07:35

Where to Find Value in Fixed Income

The rise in bond yields presents an opportunity for fixed income investors to find value according to Penter Bentley, the co-manager of the BNY Mellon Global Credit Fund. He notes that bond yields are close to their highest levels since the financial crisis and that conditions have been improving for investment-grade debt. 

 

Due to these developments, he anticipates healthy returns for global and regional investment-grade credit. A key factor is borrowers have strong balance sheets with lower leverage than before the pandemic. In fact, Bentley believes that certain segments within fixed income could perform better than equities. He identifies ‘fallen angels’, short-duration high yield bonds, and emerging market corporate debt as having the most potential for outperformance this year. 

 

Some uncertainties that could cloud this outlook including the election in November, the Fed’s ability to cut rates, and a tense geopolitical situation with Russia-Ukraine and the Middle East.  Thus, investors should expect volatility to persist all year which means more opportunities for active managers to outperform. 

 

Another place that fixed income investors can find value is with global credit. Historically, global credit has delivered better returns when markets are emerging from a downturn. In terms of global credit, Bentley sees opportunities in European credit markets and emerging market debt.   


Finsum: Peter Bentley, the co-manager of the BNY Global Credit Fund, believes that investors can find value in fixed income. He sees the potential for strong returns in global credit, short-duration high yield debt, and ‘fallen angels’. 

 

Published in Bonds: Total Market
Tuesday, 06 February 2024 05:44

Will Value Stocks Outperform in 2024

Value stocks have consistently underperformed growth stocks for many years. Yet, there are some signs that 2024 could herald a change in trend. Underperformance in value stocks was exacerbated in 2023 as many growth stocks, in the tech sector, saw huge gains due to excitement around artificial intelligence (AI). 

 

However, this could present a silver lining for value stocks as they are historically cheap, and mean-reversion could lead to solid gains. Further, growth stocks have become quite expensive, following the most recent rally, and there could be rotation into value especially if earnings don’t meet investors’ lofty expectations.

 

Value stocks are primarily comprised of healthcare, industrial, and financial stocks. A major impediment over the past year has been the struggles in the banking system due to high rates and an inverted yield curve. This means that lending is not as profitable, while banks are paying high rates on deposits but holding loans that were made when rates were much lower. But, there could be some relief coming as the Fed signals it will look to cut rates later this year. 

 

In addition to the path of monetary policy, the economy re-accelerating would be another positive catalyst for the sector. Many value stocks are economically sensitive and would see an increase in top and bottom-line numbers. However if investors are bearish on the economy but want exposure to value, they can stick with utilities and consumer staples which would outperform in a lower growth circumstance. 


Finsum: Value stocks underperformed in 2023. Here’s why 2024 is shaping up to be better, and under what circumstances, value will outperform growth. 

 

Published in Eq: Value

Currently, fixed income investors can lock in yields that are in-line with the average, historical return in equity markets. According to David Leduc, the CEO, Insight Investment North America, this is a major reason we are in a new ‘golden age’ for bonds. 

 

Another reason to be bullish on the asset class is that most funds are deployed via passive strategies. This has increased liquidity and decreased transaction costs, while also leading to more inefficiencies which astute active managers can capitalize upon. 

 

Leduc believes that fixed income benchmarks are inherently flawed given that indexes are weighted based on debt issuance. The end result is that passive fixed income investors are overexposed to the most indebted companies.

 

In contrast, active managers can achieve alpha through careful selection in terms of value, credit quality, and duration. While passive funds invest in a relatively small slice of the fixed income universe, active managers have much more latitude in terms of securities to better optimize portfolios in terms of risk and return. One constraint for active managers is that some strategies are successful but can’t necessarily be scaled. Many err by simply sticking to duration positioning which increases near-term volatility.


Finsum: It’s a golden age for fixed income with bonds offering equity-like returns. Here’s why investors should favor active strategies especially as the risk of a recession grows.  

 

Published in Bonds: Total Market
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