In this news, we discuss the Analysis: Unloved value stocks seen as cautious bet as election nears.
NEW YORK / BOSTON (Reuters) – A sustained shift to value stocks has eluded investors for years. Indeed, one casualty this week was the $ 10 billion LAO quantitative value fund that announced its closure, citing the longest “drought” on record in value.
Some investors and analysts, however, are making a counter-argument, saying the unloved trade may be worth buying as the US election approaches and progress continues on a vaccine against the coronavirus.
“Investors have lost patience with value stocks, but the irony is that we could be weeks away from a turning point,” said Troy Gayeski, partner and co-chief investment officer at SkyBridge Capital.
A possible ‘Blue Wave’ election on November 3, in which former Vice President Joe Biden wins the presidency and his Democratic Party takes over the leadership of the US Senate, could lead to a massive revival, while clinical data on COVID-19 vaccines are expected by the end of the year.
Both results could improve the outlook for the economy and help value portfolios, which tend to rely more heavily than growth on stocks in banks and other financials, as well as industrial, energy and materials companies. , according to investors and analysts.
Some investors are on tiptoe. Lauren Goodwin, multi-asset portfolio strategist at New York Life Investments, increased her exposure to value “on the margin” in part as a hedge, “in the event that we have a faster than- expected resolution of the crisis. medical, or in brief explosions when we have economic optimism.
Investing in so-called value stocks with cheap prices has a large audience and counts Warren Buffett as its most eminent disciple. But these value bets at the expense of buying high-profit growth stocks such as tech companies have generally been a losing trade for years.
Over the past five years, the Russell 1000 .RLV Stock Index has climbed only 25%, compared to a gain of 130% for the Russell 1000 .RLG Growth Index. This year alone, the growth index gained 28% against a 10% decline for the value index, while growth had outperformed for 11 consecutive months until September. For the month of October so far, the two groups are roughly equal.
BofA Global Research said value stocks had “more wiggle room,” noting the stock outperformed the benchmark S&P 500 .SPX for at least three months at the lowest of every economic recession since 1929.
Goldman Sachs recently said that a vaccine approval for 2020 “would likely result in a value rotation.”
“I think we’re going to have regime change in the markets probably after the election,” said Peter Berezin, chief strategist at BCA Research, who last month recommended clients to “pivot to value” and said that the reduction in value relative to growth is “greater than ever.”
LAO Partners founder Ted Aronson in a memo this week said that if he believes in a future of value, it is “unlikely to happen fast enough – for us. The Large Cap Absolute Strategy The fund’s value, which has more than $ 5 billion, has fallen 15% in the first nine months of 2020.
Banks are among the stocks that would need to see a surge in value for value to shine, and some fund managers are bracing for such a shift. Citigroup CN saw 196 new fund companies take positions in the company during the second quarter, including Coltrane Asset Management, while Citadel and Thornburg Investment Management increased their holdings, according to regulatory filings.
But interest rates at the lowest levels are a hindrance. Bank stocks are closely linked to bond yields, and financials are the largest sector in the Russell 1000 Value Index.
Not everyone adheres to the trade. Credit Suisse has an underweight rating on several value-related sectors. Patrick Palfrey, senior equity strategist at Credit Suisse, said the earnings fortunes of value companies typically depend on the fiscal stimulus and a widely used COVID-19 vaccine.
“If you put on value trade that depends on these, you have to make sure that these events happen,” Palfrey said.
Reporting by Lewis Krauskopf and Svea Herbst-Bayliss; edited by Megan Davies and Nick Zieminski
Original © Thomson Reuters