Is This the Year of Value?

At the WSJ, Rob Curran wonders if this is the year of value.

David Santschi, chief executive of TrimTabs Investment Research Inc. estimates that between April 1 and May 30, $4.1 billion, or 3.2% of assets, flowed out of growth-biased ETFs while $5.6 billion, or 3.7% of assets, flowed into value-oriented ETFs.

“In the past two months there was an overwhelming preference for value over growth—it’s pretty dramatic to see a split like that,” Mr. Santschi says.

Among mutual funds, Morningstar Inc.’s large-value category is up 4.6% for 2014 through May, while large-growth funds have returned 2.2%. Small-value funds are up 0.7%, while small-growth funds are down 4.7%.

“Rotations this strong, while infrequent, are typically followed by periods where value outperforms,” said Morgan Stanley chief U.S. equity strategist Adam Parker in a recent research note. In an interview, Mr. Parker says a key variable this time is investors’ perception of economic growth. Counterintuitively, economic optimism appears to favor value stocks over faster-growing ones.

“If it’s a slow-growth world, the premiums for growth expand,” meaning investors will pay more for stocks of companies that can expand even in a weak economy, he says. In his view, investors stopped paying top dollar for fast-growing companies because of an emerging consensus that the economy would be much stronger—and corporate growth easier to come by—later in 2014.

Value actually bottomed out in 2012, and has been leading the market for nearly two years.

Posted by on June 4th, 2014 at 9:37 am


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