Unfashionable value stocks have soared of late while growth stocks such as Amazon (still below September's highs) and Apple (down 10 per cent since January's peak) have lagged behind.
Indeed, the first quarter marked the biggest rotation into value stocks in 20 years, notes Bank of America. Are we finally witnessing a decisive market shift?
Value investors would argue such a shift is long overdue. Ritholtz Wealth Management's Ben Carlson notes that, even after the recent rebound, growth indices in the United States have outperformed their value counterparts by almost 12 per cent annually over the last three years. Actually, value's underperformance goes back much further; since 2009, says Carlson, US value stocks have returned 275 per cent compared to 683 per cent for growth stocks.
Global indices show a similarly wide differential, prompting many to proclaim that value investing was dead.
However, long cycles of underperformance and outperformance are common. Value trounced growth between 2000 and 2008; growth stocks dominated the 1990s; value stocks shone in the 1980s.
History indicates value is cheap relative to growth right now, so we may well be in the early innings of a new market cycle. Still, timing the turns can be a tortuous affair; a diversified portfolio containing both growth and value is surely the best way to avoid sleepless nights.
