Investment style rotations: growth versus value

Columbia Threadneedle
By July 24, 2020 15:10

Investment style rotations: growth versus value

Style rotations, where investors switch one type of investment style for another, are nothing new. At some point during most investment cycles different styles – such as growth, quality and value – will outperform at different points as investors rotate in and out depending on their outlook. Given the degree of volatility in markets, and the extreme nature of the quality/growth outperformance, we would expect in any recovery for there to be times when value – typically those companies which may go out of business given the degree of the contraction – will outperform. Similar periods occurred temporarily in Q2 2003 and Q2 2009 as markets rallied. However, our contention is that given elevated levels of debt, the 2020s may well be similar to the 2010s with low growth, inflation and interest rates – at least after the sugar rush of the immediate recovery from such depressed levels of economic activity. In this low growth environment, I believe it is entirely realistic that quality will outperform value, as long as quality companies continue to earn high returns, which it is our job to research. For those fund managers with a consistent style skew in their portfolios, there will always be times when underperformance should be anticipated, as well as outperformance. In the wake of the Covid-19 pandemic the potential for style shifts to impact performance is amplified, and in our view a sustained period of quality outperformance is likely. 

Columbia Threadneedle
By July 24, 2020 15:10

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