Part 2
The sustained underperformance of value
02 Sep 2021
This is the second part of the Investment Perspectives series on the sustained underperformance of value style since the Global Financial Crisis (GFC). We will focus primarily on two other important aspects when considering the value style. These are the growing importance of intangibles and the increased focus on sustainable investing, which both have long-term implications for value style investing. We will then conclude how the value style fits within an equity portfolio for long-term investors.
The traditional value factor has had many headwinds over the past few years. The valuation gap between value and growth is quite stretched by historical standards and there are periods (even if quite short lived) when traditional value stocks can rally. Most recently, markets experienced a comeback post vaccine announcement late in 2020, and as the cyclical rebound commenced the value style did well in early 2021.
Whether or not a period of sustained performance by value stocks will continue is difficult to predict. However, the longer-term secular trends towards digitalization and focus on sustainable investing are driving changes to business models and the increasing importance of intangibles in company valuations.
These trends affect both value and growth companies alike; as a result, how company management are embracing these changes, considering and addressing environmental, corporate and social risks and opportunities, should be embedded features of how managers assess all companies. Taking that as a ‘new’ given, crucially, timing style is hard to do, therefore for long-term investors we conclude that the value style still deserves an allocation alongside other investing styles in an equity portfolio.
Read the full article to find out more.
You can also read the first article from the series here.
If you have any questions or require any further information get in touch.
Sustained underperformance of value
You can listen to our podcast episode on this topic below:
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