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Value vs Growth: Is it now time for the value factor's resurgence?

Could 2021 be the year for value investors?

What are the prospects for a resurgence of the value factor in 2021? There are many nuances to this discussion, as we partly covered in a previous update on the same topic earlier this year. However, there seem to be changes afoot. On a macro level, a highly effective vaccine could lead to further economic growth (and potentially signs of inflation) in 2021.

Could this represent a turning of the tide for traditional value-prone sectors such as energy and financials? Or might global asset allocators consider valuations outside of the United States more attractive, given the amount of multiple expansion that has already taken place in 2020? The papers that follow revisit value's struggles, including whether intangible assets are to blame for growth's outperformance in an attempt to ascertain whether the inflection point for value investors is at hand. 

Value versus growth

Re-framing Growth and Value Through an Active Lens (MFS, Nov 2020)

MFS equity portfolio managers offer a long-term perspective on style rotation for factors and for benchmarks. They also cover index concentration trends and the drivers of growth's recent outperformance.

Resurrecting the Value Premium (Robeco, 2020)

Robeco provides enhancements to the traditional high-minus-low value factor, showing that despite recent multiple expansion, the value premium still exists.

Video: Will Value Propel European Equities in 2021? (Janus Henderson, Dec 2020)

For compliance reasons, this paper is only accessible in certain geographies

In this video, John Bennett of Janus Henderson Investors states that value-minded investors could spot opportunities in European equities in 2021, but this is heavily dependent upon inflation expectations.

Is the Long Value Drought Coming to an End? (FTSE Russell, Dec 2020)

Is the value factor dead? If not, what are the catalysts that could lead to its potential revival? FTSE Russell points out that November's outperformance was led predominantly by the oil & gas sector and the financials sector.

The Value Factor’s Pain: Blame intangibles? (Enterprising Investor blog, 2020)

A popular narrative is that changes in valuation metrics (including the rise in importance of intangible assets in the tech sector) have rendered the value factor obsolete. But just how accurate is the narrative itself?

Podcast: The rebirth of value – Or another false dawn? (NN IP, Nov 2020)

Value stocks have been in a deep sleep for a long time, but this NN Investment Partners podcast suggests that they may be in the process of waking up. Could positive news about a COVID-19 vaccine be the catalyst that galvanizes value stocks?

Video: Will value ever work again? (Man Group, Oct 2020)

Man Group's 30-minute webinar covers a lot of ground, from the drivers of value's underperformance to the potential catalysts of value's recovery.

Value Stocks: Trapped or spring-loaded? (Northern Trust AM, Sep 2020)

Northern Trust Asset Management recommends not giving up on value. Instead, investors may wish to combine the value and quality factors, maintain sector neutrality, or utilise several different valuation metrics.

Can Investors Still Believe in the Value Premium? (Lazard AM, 2020)

The value premium could return if inflation begins to boost commodity prices, or if government debt piles lead to currency debasement, or in the case of regulatory actions on large (potentially monopolistic) growth stocks. Lazard Asset Management looks at these and other potentially relevant issues for value investors.

Time to Reconsider US Growth and Value? (Amundi, Oct 2020)

For compliance reasons, this paper is NOT accessible in the United States

Amundi considers a hybrid approach to the growth versus value dichotomy, recommending both high-quality growth and high-quality value stocks while avoiding hyper-growth names and deeply discounted value stocks.

Continued Dominance of Growth Style Investing (S&P Dow Jones Indices, Oct 2020)

To what extent has growth style investing outperformed value so far this year? Well, through the end of Q3, the S&P Growth index is up 32% against its counterpart value index. This brief blog from S&P Dow Jones Indices highlights related insights and other striking statistics.

Redefining 'Value' for a Modern Economy (Wellington Management, Sep 2020)

Note: This paper was Highly Commended in the Factor Investing category in this year's Savvy Investor Awards. The authors propose broadening the traditional value metrics to incorporate discounted cash flows, while also looking at other multiples to form a more complete picture.

Book Value is an Incomplete Measure of Firm Size (Research Affiliates, 2020)

If value is defined solely using the price-to-book ratio, this fails to incorporate the value of intangibles (which have become increasingly significant over the past two decades). The authors update the traditional Fama-French model to take this into account, but still recommend a composite of ratios for value assessments.

The Benefits of Style-Agnostic Investing (Aviva Investors, 2020)

For compliance reasons, this paper is only accessible in certain geographies

Why should investors be steadfast in adhering to one style over another? Instead, Aviva Investors extols the benefits of a style-agnostic approach to investing.

Will Non-US Value Ever Outperform? (Wellington Management, Aug 2020)

The authors suggest that value's comeback would require sustained outperformance of value stocks (over quality and growth stocks). They then look at what this would imply for value-tilted industries such as energy and banking.