EC Is The End Of The Value Trade Near?

End Value Trade, #Technically Speaking: Is The End Of The Value Trade Near?

End Value Trade, #Technically Speaking: Is The End Of The Value Trade Near?

Is this time different? Maybe. As Michael notes:

“The last decade, in which growth has beaten value, is the anomaly, not the rule. Just as we started with a question, we leave you with one: are we entering a new paradigm?”

The change to the market environment resulting from the computerization of the markets, liquidity, and artificial interventions has indeed changed its functioning over the last decade. Social media and financial trading apps like “Robinhood” have changed investor’s behaviors.

Such may indeed have changed the value/growth equation as the lines between “value” and “growth” become more blurred.

A Barbell Approach

We certainly don’t profess to have all the answers, but there is no argument we will see more robust growth, rising inflationary pressures, and higher rates. Such suggests the “value trade” may persist for a while longer.

In an inflationary environment, coincident with higher rates, investors should focus on the sectors that have a low correlation with the US Dollar. Furthermore, investments should be able to generate earnings growth in a weak economic environment in the future.

Such leaves us with maintaining a barbell approach to our portfolios, with a portion of the allocation focused on value for the current environment. Those sectors remain energy, financials, industrials, and materials for now.

However, we also continue to opportunistically add to our growth sectors as economic growth will return to its 2%ish long-term trend growth. Technology, Staples, and Healthcare remain increasingly recession-proof due to the changing workforce, demographic trends, and living standards.

We are firm believers in “value investing.”  However, after years of artificial interventions, accounting gimmicks, share buybacks, and massive balance sheet leveraging, there is little “real” value in the markets currently.

Given that the markets have not been allowed to reset, speculators are now simply chasing the next “momentum” trade called “value.”

For now, we have to continue to navigate markets for what they are rather than what we “hope” they could be. We suspect that this year could wind up disappointing both economists and investors alike.

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