For the first time in over 10 years, institutional investors are tilting multi-asset portfolios to an overweight position in value stocks relative to growth stocks.
As we have noted, this is more than a short-term rally, in our view, and the long-term strategic case for allocating to value has resurged. Today’s economic and market conditions provide a great environment for selective value investing, and we believe some of the most compelling opportunities are to be found in comparatively less efficient markets outside of the U.S.
Uncovering attractive value in these more inefficient markets, however, means possessing intimate knowledge of companies and capital markets in different regions. It is this knowledge that allows investors, like Global Value Equity Strategy Portfolio Manager Sebastien Mallet, to swap quality for upside potential.
As we look forward, we believe the coming decade will look very different from the last. Markets tend to change significantly every 10 to 15 years. Since the global financial crisis, a prolonged period of secular stagnation has been accompanied by low rates and subdued economic growth. The pandemic has prompted more aggressive, expansionary fiscal and monetary policies, approaching modern monetary theory. Actions to address inequality and the “green agenda” could also provide an impetus for even higher fiscal spending. These changes could help to improve economic growth, which in turn could put upward pressure on both interest rates and inflation. This environment would be favorable for cyclical, financial, and consumption stocks, to the likely benefit of a value investing approach.
More fundamentally, we believe it will be crucial to focus on the best companies at the right time in their cycle. Importantly, with current valuations remaining attractive, an economic recovery in full flow, and earnings delivering above expectations, we believe this rally may only just be beginning and could potentially herald a more sustained shift back toward value as an investment style. For investors seeking a balanced portfolio, we believe value is an essential component of an investment strategy.
Seeking Value Stocks on the Right Side of Change
What’s Next for Value Stocks
Why This “Value” Recovery May Have Only Just Begun
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