A New Day for Value Rotation through Active Management? | ETF Trends

For some time, rebounds in value stocks have moved in fits and starts, but there’s brewing sentiment that the recent gains could be different than prior disappointments, all to the benefit of active managers.

Value fans believe this time may be different for value stocks, pointing to improving measures of investment sentiment, abating fears of a recession, rebounding corporate profits, and lessening trade tensions between the U.S. and China. Furthermore, value stocks are now trading at some of their most attractive prices in years as the growth/value gap is as wide as it’s been in decades

“Reinvigorated hope for a near-term vaccine breakthrough prompted swaths of investors to dump tech giants and other growth stocks for small-caps and cyclicals in Monday and Tuesday trading. Inertia in the value shift has since cooled, and momentum stocks are still expensive relative to the rest of the market,” reports Ben Wick for Business Insider, citing JPMorgan strategists. “That leaves plenty of room for value to run, they added.”

Equities vs. Safe-Haven Assets

With the growth/value gap as wide as it’s ever been, there are incredible opportunities for investors to jump into equities, while the default maneuver in today’s market landscape is heading into safe-haven assets like bonds or precious metals. Investors could be missing out.

“But for every boost to growth names, investors can anticipate more volatile moves into cyclical sectors,” according to Business Insider. “Value stocks are poised to outperform once the virus is contained and the global economy fully emerges from restrictions and fear, the team said. Conversely, momentum and growth picks will significantly underperform the market once risk appetites improve and investors exit the crowded stocks.”

Value stocks tend to trade at a lower price relative to their fundamentals (including dividends, earnings, and sales). While they generally have solid fundamentals, value stocks may have lost popularity in the market and are considered bargain priced compared with their competitors.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.