Value "Outperformance"
From the Wall Street Journal:
"Value stocks are beating growth stocks by the widest margin in two decades, the latest sign that investors expect the next year to bring a powerful economic rebound.
As the rollout of Covid-19 vaccines quickens and the economy bounces back from last year’s shutdowns, portfolio managers are snapping up cyclical stocks—banks, energy companies and others whose fortunes are closely linked to economic growth. Those shares often fit the description of value stocks, which trade at low multiples of their book value, or net worth.
The shift in bets marks a reversal of a trend that has held essentially since the financial crisis, in which growth stocks outpaced value stocks. That reflected in part the rise of big tech companies such as Apple Inc. and Amazon.com Inc. AMZN -1.61% and in part the softness of the U.S. economy. This year, the Russell 1000 Value Index is up 10% and the Russell 1000 Growth Index has edged up 0.4%. That gap is the largest lead for value stocks at this time of year since 2001, according to Dow Jones Market Data."
Folks, it's March 12 as I write this. Not the largest sample size to claim a trend. Is it true? Yes. Does it have enough context? Probably not. It's an example of moving the goalposts and time frame in order to fit a pre-determined narrative. In 2020, the Russell 1000 Growth was up nearly 39%. During that same time frame, the Russell 1000 Value was up nearly 3%. Value has been getting stomped for over a decade. It has a long way to go to claim outperformance for any meaningful time period.
Earlier in the week, Josh Brown wrote a piece around this very topic. We back into reasoning ad hoc to verify an outcome in our own heads. The first two paragraphs are critical reading:
"One of the myriad ways you can spot a veteran investor amid a crowd of new or inexperienced investors – the veteran doesn’t need a reason to explain everything that’s happened. Veterans, after ten or twenty years, come to accept the randomness inherent in the game. Until you can accept that there isn’t always a reason for everything, it’s hard to move forward in this business.
Sometimes psychology just changes and sellers become in the mood to buy, or buyers get in the mood to sell. The media takes note of this shift in behavior and attitudes, and it sets out to find a reason for it afterwards. They do this because it satisfies the audience’s very human need for cause and effect. We all want linearly plotted story lines that have a beginning, a middle and an end. We want to know what force caused this or that reaction, because – our minds reason – if we see that force abate, then so too will we see the reaction subside."
So rather than search out reasons to own either value or growth, think of a portfolio like a team sport. If your first line left wing provides the majority of scoring for years, and all of the sudden, offense starts coming from the defensemen and third line center, the team is likely better for it. It's not either or; it's about a team effort. Some oscillation back and forth is healthy, and very normal. And while we've seen this more in recent months than we have in years, time will tell if it sustains itself.
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Sources:
Value Investors Finally Have a Reason to Celebrate - For Now (Wall Street Journal)
The day the growth trade topped (Josh Brown)
The content in this article was prepared by the article’s author. Voya Financial Advisors, Inc. does not endorse its content, and the views expressed may not necessarily reflect those held by Voya Financial Advisors, Inc.
