Beauty is in the eye of the beholder, but investors seem to only have eyes for tech stocks, and not value.
With a few exceptions, value investing has been in a yearslong slump, one that’s only been exacerbated by the tech-led market rally that’s heavily favored growth stocks. This year alone the
exchange-traded fund has gained less than 4%, while its counterpart
ETF has climbed more than 9%, putting it just ahead of the
which is up roughly 7%.
There’s an argument to be made that value stocks can make a comeback; if nothing else, their persistent underperformance means they look particularly inexpensive compared with the broader market and big tech.
“The resurgence of growth in the U.S. once again cast doubt on whether value can outperform looking forward,” noted GMO LLC’s asset-allocation in a note Tuesday. However, GMO believes “today’s extreme valuation differentials as strong evidence in support of value’s potential to meaningfully outperform growth…Outside the U.S., value has been consistently winning [and] the U.S. may also be ripe for a value-growth reversal as sentiment shifts” should growth companies disappoint or expected interest-rate cuts fail to appear.
Others have argued similarly, like Stifel’s Barry Bannister, who believes that cyclical value stocks such as financials, industrials, materials, real estate, and energy are getting too cheap to ignore.
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That may be the case, but for now, it doesn’t seem as if bargain hunters are in the driver’s seat.
In fact,
and
Global are two of the biggest drivers behind the recent performance of the
as Bear Traps Reports’ Larry McDonald writes on Wednesday.
“It makes you wonder who the portfolio managers are running the
ETF that they think AMD (56 times earnings) and COIN (151 times earnings) are value,” he writes.
Nor are they exceptions, he notes, pointing to other top contributors, such as
—trading at 20 times enterprise value to earnings before interest, taxes, depreciation, and amortization—and
and
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which also sport high multiples.
“All these stocks were top contributors to the iShares Russell 1000 Value ETF and only in the minds of Russell index committee are these stocks ‘value,’” he argues.
That is a fair argument, but in an environment that has so consistently rewarded growth over value, it’s easy to understand the temptation. The iShares Russell 1000 Value ETF is up just over 4% in 2024, barely edging past the Vanguard S&P 500 Value ETF.
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In fact, as Barron’s has noted previously, what constitutes value investing has been changing over the years, in some cases little resembling the classic model championed by big names such as Warren Buffett.
Until the market shifts from the relentlessly growth-oriented mood that’s dominated in recent years, many investors may be willing to be more expansive in their definitions of value.
Write to Teresa Rivas at teresa.rivas@barrons.com
