With the Federal Open Markets Committee looking to raise rates and inflation continuing to be a thorn in investors’ sides, many industry insiders are predicting that value stocks will fare better than growth. After all, rising interest rates tend to favor value stocks, and higher inflation is often a net positive for value strategies.
John Davi, founder, CEO, and CIO of Astoria Portfolio Advisors, writes that “portfolios should be tilting towards value-centric assets,” adding: “Growth stocks will continue to suffer with higher rates and value stocks still offer a margin of safety.”
Davi also notes that “inflation sensitive assets … are cheap, under-owned, and could potentially provide support for portfolios if inflation remains high.”
Meanwhile, an outlook report from LPL Financial says that the firm maintained “a slight preference for value over growth to benefit from potentially above-trend economic growth in 2022. Rising interest rates and higher inflation are conditions that have historically been favorable to value-style stock performance.”
Over at the Cabot Wealth Network, Bruce Kaser notes that while growth stocks have outpaced value stocks over the past decade — growth produced a 17.4% annualized return over the 10 years, while value stocks returned just 10.6% during the same period — performance is cyclical, and he believes that “the growth style of investing has reached its limit” and value investing “is increasingly likely to emerge as a successful strategy.”
Kaser suggests that, with investors having accelerated their valuation assumptions in response to the COVID-19 pandemic speeding up the economy’s digitization, the growth cycle may be soon coming to an end.
“Value investing is about finding companies with enduring value, at bargain prices,” writes Kaser.
Investors looking to add value to their portfolio could consider the American Century Focused Large Cap Value ETF (FLV). FLV tries to achieve long-term returns through an investment process that seeks to identify value and minimize volatility. FLV holdings and value stocks usually trade at lower prices relative to fundamental value measures, like earnings and the book value of assets.
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