On a recent episode of the SS&C ALPS Advisors Building Blocks podcast, Investment Strategy Advisor Danny Schwab and Senior Investment Strategy Advisor Paul Baiocchi sat down with Eric Hewitt, Portfolio Manager and Alex Hagmeyer, Senior Director Quantitative Research, both with ALPS Advisors, to discuss the rotation to value.
As Hagmeyer explains, value hasn’t been in favor for several years, which has led to this start of rotation. As far as what’s causing it, there’s a major inflection point that started kicking off with the Presidential election and then got stronger with the vaccine news. It’s reflationary impulses that were similarly seen throughout several past cycles, but it’s different this time. Performance is stronger in terms of growth and value.
With that in mind, looking back to last February, before the pandemic’s full takeover, the value had plenty to grow into. That said, as far as the drivers go, this is the way to a new business cycle thanks to plenty of successes, including the vaccine rollout and consumer saving. It’s all adding up to strong consensus estimates for the GDP, allowing for high expectations regarding a significant recovery. This means looking at drivers associated with the business cycle, where there tends to be an outperformance for value.
Hagmeyer speculates that a deterioration in the growth outlook would have to be a factor in terms of possible threats to value reversion. A premature tightening of financial conditions that would have to be induced by the Federal Reserve. Were they to essentially end the business cycle or attempt to normalize rates in the liquidity provision they’re providing to the market.
However, there are some drivers worth pointing out. The ALPS Sector Dividend Dogs ETF (SDOG), for example, has exposure to sectors such as housing, let alone manufacturing and trade. Given how rates have hit a certain pace, this past year has proven to show where growth has been located.
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