Recent news about some of the COVID vaccines currently in development have hugely raised everyone’s hopes that the tough times we have all been living through over the last nine months will soon be over. For one particular group of clients, this news was even more encouraging as it signalled an end to its own more long run ordeal. The significant underperformance of value investment strategies relative to growth investment strategies for most of the last decade has been a troublesome burden for many of the value managers we work with. However, from recent conversations with clients there is a growing sense of optimism about the near-term outlook for value versus growth.
One client noted on a recent board call: “This has been the longest run of underperformance of value versus growth in my lifetime as an investor and the divergence in performance between the two styles has never been as great. We were sure this was going to end last year, particularly as the FAANGs began to become more fully valued, but unfortunately COVID resulted in giving growth stocks, many of which were perceived as beneficiaries of the “stay at home” phenomenon, another leg up. Now with a vaccine in sight we are hopeful that mean reversion will finally begin to take its course”.
Two other value based managers that we work with have separately told us about a definite pick-up in inbound enquiries from potential investors in recent weeks and are confident that a good number of these will shortly convert into new allocations.
Another client was somewhat more cautious but still positive noting: “The sharp sell-off in stay at home stocks on news of the vaccine doesn’t necessarily mean that value stocks will now finally have their run but it could at least mean that growth as an investment style begins to fall out of favour and that can only be helpful.”
As always, we remain neutral on such matters and leave it to our clients to opine on how events may eventually unfold. We are, however, struck by the parallel between the value investment process and how the style itself has performed. Value investment managers seek to buy ‘beaten up’, unloved stocks which in their view are still fundamentally sound and then they wait until their patience is finally rewarded. For long suffering investors in value strategies, it may well be the case that the rewards for their patience are at last in sight.
