Growth has outperformed value for most of the past 10 years,¹ but when value eventually takes back leadership, the reversal may end up being dramatic.
In early September 2019, we witnessed an abrupt momentum-to-value reversal in equity market leadership. Will this mark the beginning of a shift in leadership?
The momentum-led market of the past couple of years has not only favored the growth darlings popularly referred to as FAANG—Facebook, Apple, Amazon, Netflix, and Aphabet (parent company of Google)—but also companies deemed to be stable, as macroeconomic fears surrounding the U.S.-China trade war and an inverted yield curve have caused investors to seemingly disregard two of the three key tenets in Boston Partners’ three circles investment framework: attractive valuation and strong business fundamentals (high financial productivity); the third circle is a catalyst for change.
We believe value stocks are on sale now after the recent outperformance of growth stocks. It’s market environments such as this that tempt many managers to stray from their stated investment discipline because short-term underperformance feels like it lasts a long time. It’s important to remind yourself not to be tempted into behavioral mistakes of market timing and performance chasing.
FOR INVESTMENT PROFESSIONALS ONLY.
Explore an in-depth discussion of why we think now is the time for investors to take advantage of valuation discrepancies in growth and value stocks in our white paper, “Watch out when value returns to favor.”
1 The Russell 1000 Growth Index had a 10-year annualzed return of 15.2% as of 12/31/19, compared with 11.8% for the Russell 1000 Value Index, according to FTSE Russell. The Russell 1000 Growth Index tracks the performance of publicly traded large-cap companies in the United States with higher price-to-book ratios and higher forecasted growth values. The Russell 1000 Value Index tracks the performance of publicly traded large-cap companies in the United States with lower price-to-book ratios and lower forecasted growth values. It is not possible to invest directly in an index.