Value investing has been out of favour with investors over the past decade. 2020 was no different with investors chasing growth and momentum equities at the expense of Value stocks. But there appears to be a shift in sentiment; Value-based indices across the regions staged a recovery in November 2020 as investors increased their expectations for higher growth.
While markets may experience intermittent pull backs as seen in recent days, the key question is can Value stocks continue on an upward trajectory and prove its worth?
Zhenghao Phua, a portfolio manager in the Eastspring Portfolio Advisors team, thinks there is sufficient evidence to be optimistic. The current Value factor resurgence after a decade of significant underperformance is supported by a broadening of cyclical recovery similar to the post 2003 SARS epidemic recovery. Growth will also be backed by sustained fiscal easing given that the new US Treasury Secretary Janet Yellen and the IMF are urging governments to spend big and more.
For investors, having exposure to Value stocks can protect them from a situation where inflation returns faster than expected and possibly result in central bankers altering their rhetoric on liquidity, thereby challenging bonds and growth stocks.