Strength in numbers
Investors are after the extra 2% value gained over their growth counterparts last year but, going back 10 years, this occurred in the opposite direction. But does value offer a better downside outcome?
Looking at the past three years, when returns were less impressive, it would seem not.
In the tough times of 2008 and 2011, it was growth that performed best. However, the relative performance was greatly influenced by markets’ perception of banks and their financial ill-health.
Maybe looking at the financial strength and business models of financials, which plays a large part in the value index is what is needed. The active manager should be able to pick and choose which of those he/she wants to own rather than buy a traditional value index or financials ETF.
Value that is sustainable could be a theme such as infrastructure, which has political will behind it.
If the value/growth relationship points to tougher equity markets ahead, should we increase microcap? This has a history of doing well in tough times except for liquidity events and is probably a growth story, but is beyond the reach of large investors.
Should we look beyond that argument to find one or two of the few decent long/short equity managers or even those that encompass ‘proper’ factor investing? In our portfolios we have exposures to all of these, but there is not a value/growth demarcation line.
We were asked recently if we should allocate more to commodities to reflect an upturn in global economic activity.
We responded that we had already looked at those materials needed for the modern world and added a manager that benefited the portfolio’s risk/reward relationship. We did not assign a growth or value tag to that holding.
