How to look at #Value and #Growth? – Research Highlights

Editorial Team OpinioPro
By April 16, 2021 11:25

How to look at #Value and #Growth? – Research Highlights

How to look at #Value and #Growth? – Research Highlights

First, we look at a recent publication from GMO named “The duration of value and growth”. Here they look at the comparison between bond duration and value and growth. The advancement of the coronavirus in the market has reinforced the idea that value stocks are ‘short duration’. This means that whenever bond yields rise value stocks rise and vice versa. On the long run however, value stocks do not show much correlation to bond movements.

GMO states that there might be other reasons to believe that there is currently a higher correlation between value stocks and economic growth than growth stocks, but there exists no economic or historic evidence of a meaningful correlation between the performance of value stocks and the market. GMO thinks that value stocks are trading at a too high discount to the market, which means that value should outperform over the upcoming years.

BNP Paribas AM looks at the performance of value stocks in comparison to growth stocks, and the definition of value in a recent publication named: “Value stocks – Different definitions can mean significantly different outcomes”.

In the publication, they find that when looking at value indices and the HML factor that value has heavily underperformed in recent years. The analysis done by BNP Paribas AM shows that an important factor to keep in mind when looking at value, is the sector that companies operate in. Sector neutrality highly reduces the correlation with the macroeconomic cycle. Next to the exposure to the macroeconomic cycle, sector neutrality also reduces the impact of intangibles. In this analysis, where sector neutrality and beta neutrality are taken into account, value stocks did well until 2018.

BNP Paribas AM states that value has done poorly since 2007 mostly due to their sector exposure. As a conclusion, they note that the underperformance of value stocks against expensive stocks since 2018 has been accompanied by the strongest expansion of value spreads since 1998-2000.

Last but not least, we take a look at a publication by Amundi that advocates a rotation towards value, named: “The unique time for US value: rotation from growth plus innovation, quality and ESG improvement”.

In this paper, Amundi expects that the rotation towards value will be the main theme for 2021: with an accommodative Fed that will lead to reflation and a steeper yield-curve, a ‘V-Shaped’ recovery of the U.S. economy, and the large disparity between stock prices of value- and growth stocks. Next to these arguments, U.S. value stocks show the opportunity of medium- and long-term performance when compared to both U.S. and global stock markets. This opportunity comes due to a combination of structural growth, quality ESG improvements, stability, defensiveness, and valuation support according to Amundi.

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Foto door Karolina Grabowska via Pexels

Editorial Team OpinioPro
By April 16, 2021 11:25

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