Growth outperformance still possible despite value rally
Despite the outperformance of value companies in the last few months, investors should not “give up on growth” stocks as they still have the potential to outperform.
In a webinar, BetaShares chief economist, David Bassanese, said the potential outperformance for growth stocks would depend on how long the inflation concerns persisted.
“Don’t give up on growth. Growth companies could still do well over the next three to six months depending on how long inflation concerns persist.
“This is debatable, it depends how much of it is short-term supply bottlenecks. If that is the case then you might see growth outperform again.”
Value stocks had been seeing their best performance lately after a decade of underperformance which was leading investors to consider them for the first time in years.
The Russell 2000 Value index in the US had returned 58.8% over one year to 1 June, 2021, compared to 44.8% by the wider Russell 2000 index. This compared to returns of 273% by the Value index over 10 years to 1 June, 2021, and 322% by the wider index.
Performance of Russell 2000 Value versus Russell 2000 over one year to 1 June 2021
The areas which were benefitting the most from the inflation pressure was gold, energy, banks, and real estate while technology, growth assets, and income assets were faring badly
He said there had been comments likening the current market environment to the dotcom bubble but he felt this was not the case as the tech companies affected were already very successful and had strong profitability which was unlike 20 years ago.
“The tech companies affected are those that don’t have current earnings, their future earnings are built into the share price. So, when inflation rises, you have to discount those so [these companies] are more sensitive to interest rates and inflation as their earnings are in the future,” Bassanese said.
AUTHOR
Laura Dew
Recommended for you
Tribeca Investment Partners has made a distribution hire from Australian Ethical in a newly-created role focused on the national intermediary market.
Asset managers may be urged to diversify their product ranges, but investment executives have warned any M&A deal should avoid simply filling gaps and instead consider long-term value creation.
Specialist wealth platform provider Mason Stevens has become the latest target of an acquisition as it enters a binding agreement with a leading Sydney-based private equity firm.
Fund managers are entering 2025 with the most bullish sentiment since August 2021 and record high allocations to US equities, thanks to the incoming Trump administration.
