Investors have made big shifts in recent days, turning to the once downtrodden value style and related exchange traded funds on hopes of shaking off current market uncertainty for good.
As the market looks to the new $1.9 trillion stimulus package and an economic rebound supported by vaccine distributions, a flood of cash has rushed back into cyclical shares and more economically sensitive sectors whose valuations were flattened by the 2020 pandemic fallout, Bloomberg reports.
“Value crushed it for the right reasons,” Evercore ISI strategists led by Dennis DeBusschere said in a note.
Specifically, ETFs that track the value investing style have attracted new inflows for 10 consecutive weeks while inflows and the market rally added to a $100 billion jump in assets since the start of November.
These value-related ETFs are on pace for their best-ever quarter for new inflows and are just $5 billion shy from overtaking their growth factor counterparts in assets.
Value strategies focus on stocks that are more sensitive to the business cycle. In comparison, growth trades are tied to companies capable of providing reliable profits over the long-term.
However, with the improved economic outlook fueling the rise in yields, the near-term cash flows of value equities have become more attractive relative to the long-term revenue streams of growth names.
“The higher that yields go, the more pressure is on that rotation,” Saxo Bank strategist Eleanor Creagh said in a note.
Despite the recent outperformance, value’s rebound is still minor relative to its historical underperformance since the global financial crisis. The value segment’s price-to-book gap compared to growth is still over twice the 25- or 10-year average, and the disparity is not far from the peak difference preceding the burst of the dot-com era bubble.
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