Value Is Back. Take the Comprehensive Route with Model Portfolios

Finally, value stocks are generating some well-deserved buzz, and for the first time in a long time, there are reasons to believe this rally isn’t a mere head fake.

The WisdomTree Core Equity Model Portfolio is ideal for accessing some of the trends proving sturdy in the first quarter – ones that are likely to be durable for some time.

“This model portfolio is designed for growth-oriented investors with a long-term horizon looking to maximize long-term potential for capital growth through a globally diversified set of equity ETFs,” according to WisdomTree.

This model portfolio features 11 exchange traded funds spanning domestic, developed international, and emerging markets stocks. Many of the funds on the roster offer value exposure in some form or fashion.

The Right Reflation Idea?

With so much talk of inflationary pressure picking up and the reflation trade having legs, the Core Equity Model Portfolio remains useful in today’s environment.

“First, last year’s 26% growth in money supply may still be filtering its way into the system, aching to show up at the supermarket. And if the U.S. does hit COVID-19 herd immunity in the coming months, a surge in demand for goods and services could bring capacity utilization in line with levels consistent with a humming rebound,” writes Jeff Weniger, WisdomTree head of equity strategy.

Reflation is expected to cause a rotation – one that’s already starting – to cyclical value sectors such as banks, energy, and materials.

See also: Disruptive Growth Is King. So Is This Model Portfolio

Rising 10-year yields also bode well for value stocks.

Since August 2020, “the t-note yield has turned tail, with the bond market selling pushing its yield to 1.72%,” notes Weniger. The cause: an inflation buzz. From the bond market’s August extreme through March 30, 2021, the S&P 500 Value Index has rallied 27.8%, trudging ahead of the 15.1% return of the S&P 500 Growth Index. The bond market is guiding the stock market. If falling rates meant growth stock dominance, it would seem the opposite would mean…well, the opposite. A nascent value cycle may be under way.”

For more on how to implement model portfolios, visit our Model Portfolio Channel.

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.