BOSTON -- Freedom Capital Management Corp., Boston, has moved its tactical equity clients into value style management, departing for the first time in four years from a growth call for those clients.
"There are stronger signals that value is the place to be now," said Mike Spencer, Freedom Capital's chief investment officer.
"This is a 12-month forecast. Our clients are nervous, but we believe a year from now they will be glad to be in value," Mr. Spencer said. Many of the clients using Freedom's tactical equity approaches are small Massachusetts pension funds.
Freedom has two style-based tactical strategies, under which the firm chooses a value or growth bias. The active large-cap equity, with a 70%-30% style split now favoring value, has assets of $194 million. The equity style management index account, with $272 million, is now 100% in value.
The success of growth investing has been due to slowing corporate profit growth, moderate economic growth and a flat yield curve -- conditions that continue in 1999.
However, the price-earnings ratio of the average stock in the growth universe is about 37, a 17-point premium over the value ratio, said Kevin Hart, portfolio manager. The spread is generally 10 to 11 points.
This growing discrepancy in valuation supports a move toward value, he said.
"Risks of an economic slowdown still loom over the U.S. economy; however, minimal inflation and an accommodative Fed, committed to promoting growth, support the general health of the U.S. economy. Even factoring in the possibility of a recession, we believe the value universe is a more attractive style as we enter 1999," Mr. Hart said.
