June 11, 2021
Market Snapshot:Is Value Still the Comeback Kid?
Is Value Still the Comeback Kid?
- Value stocks have demonstrated significant strength versus growth stocks over the past nine months, leading some investors to wonder just how sustainable value outperformance could be for the long haul. This topic is of particular interest since the yield curve, which many view as a catalyst for value, has normalized from depressed levels seen during the COVID-19 pandemic to levels of roughly five years earlier (see chart). Historical data suggests value/growth performance tends to be cyclical, with the cheapest stocks tending to outperform in cycles of about 22 months, on average. The current value cycle, then, is by no means longer than most.
- It is important to consider the starting point of the value comeback. The Russell 1000 Growth Index had outperformed the Russell 1000 Value Index by 43.5% for the 12 months ending August 2000 — the most since the inception of the Russell indexes in 1979. The value recovery has overcome this weakness, with value outperforming by 4.5% over the past 12 months (ended May 31, 2021). The annual standard deviation of style performance, however, is +/- 12%, so this outperformance appears not to be overextended.
- The internet bubble is the only period since that approaches the growth run of 2019-2020. Based on this period, from 12/31/1995 to 12/31/2003, the cheapest stocks in the Russell 1000 Index reached their weakest point in 1999, similar to what happened with the recent trajectory 20 years later. This relative underperformance came as the yield curve inverted due to economic pressures. Nine months after the 1999 bottom (in February 2020), value stocks had largely recovered, and the yield curve had normalized to prior levels, much like today. However, the value/growth normalization was not finished in 2001: Over the following two years, the yield curve continued to rise from 1.5% to 2.9%, and the lowest-valuation stocks continued to outperform their high price-to-book peers by 80%. We continue to believe the value cycle may only be half over, or even less so, with more room to run
(see March 10, 2021, Snapshot, After Six Months of Outperformance, Do Value Stocks Have Room to Grow?).
The views expressed represent the opinions of certain GIM portfolio managers as of June 8, 2021 and are not intended as a recommendation of any security, sector or product, and any security identified herein may or may not have been bought, held and/or sold by GIM-managed portfolios. Any opinions or projections herein are based on information available at the time of publication and may change thereafter. Information obtained from third-party sources is assumed to be reliable, but accuracy is not guaranteed. Future developments (including performance) may differ materially from expectations and projections noted herein due to various risks and uncertainties and changes in underlying assumptions. For institutional and professional investors only; not for retail clients.