Institutional investors and money managers are looking to add value stocks back into portfolios to bring more balance and counter overweights to growth exposures.
Market participants had expected value to follow history — outperforming in a recovery. But in the recent bounce back from the coronavirus-induced depths of March, value continued to underperform. Returns looked better than previous months, at 12.85% for the three months through June 30, but global stocks gained 19.54% and growth stocks gained 25.64%.
"We're getting a lot of questions from our clients and interested parties, quite naturally saying, 'If it does not work in this situation, is it ever going to work?' The standard argument is that it's not just value underperforming growth, but specifically that a number of tech stocks are shooting the lights out," said Koray Yesildag, principal, asset allocation specialist at Aon PLC in London.
Exponential returns by growth stocks have left portfolios overweight to the investment style at the expense of value. However, that's starting to play on investors' minds.
"I think people are worried a little about growth exposure," said Laurence Bensafi, deputy head, emerging markets equities and senior portfolio manager at RBC Global Asset Management (U.K.) Ltd., based in London. The firm's value assets under management were not available.
Growth and value exposures in equity portfolios were previously more balanced, especially in the U.S., she said. "And value has been so out of favor it has added concentration to growth."
But "this year has been the most interest I've seen for seven years in value, in that when the growth trend reverses it will be quite violent," Ms. Bensafi said.
J.P. Morgan Asset Management's value team is also "watching tech closely" for signs of the growth style having "a more difficult time," said Ian Butler, executive director and a portfolio manager in London. "For value to outperform growth, it doesn't necessarily have to go up exponentially."