The Return of Value Investing?
Value investing may come back into fashion sooner than one might think. According to a recent poll conducted during Style Research’s factor performance webinar for the fourth quarter of 2017, it just might be right around the corner.
When asked which investment factors like will outperform in the global developed markets this year, participants selected value (33%), growth (28%), and quality (24%) over volatility (8%) and yield (7%).
The responses did not come as a surprise to Bernie Nelson, president of Style Research, North America and who was one of the webinar hosts, told Markets Media.
“In some ways, I think it reflects much of what our clients and investors are asking about value and growth,” he said.
Although value factors, such as cash-flow yield, sales-to-price, book-price, and earnings yield, were the highest ranked investment factors regarding performance in 2016 according to Style Research’s analysis, they went from “first to worst” in 2017 when a mixture of growth, momentum, and volatility factors replaced them.
Nelson also noted that these are common indicators of late-stage bull markets.
He has separated investors between those investors who are chomping at the bit to invest in value on again and those who do not want to get off the continuous growth train that has fueled the equities market over the past year.
So far the latter strategies seem to prevail currently. “There is a perceived calm, in a sense,” said Nelson. “There’s low volatility not only in the indices and the markets but the macro indicators as well.”
There is a new paradigm that has embraced a continuous growth story, he added.
Return to a value focus will require a significant catalyst to change the focus of investors. One potential catalyst will be the Federal Open Market Committee’s behavior under incoming Federal Reserve Chairman Jerome Powell.
If the FOMC decides suddenly or hastily accelerate its rate hikes, it could be a strong enough jolt to the market that would return investors to value investing, explained Nelson.