Long-term value investing still pays off
Investors should not give up on long-term value investing, even though it has been subject to recent cyclicality, according to State Street Global Advisors (SSGA).
Also, at this relatively low point in cycle, investors should broaden their definition of value in order to fully capture the value premium over the long term, the firm said.
Value investing underperformed its long-term average returns for eight years and following the Global Financial Crisis (GFC) when central banks in developed regions aimed to pursue aggressive monetary easing tactics to provide liquidity which, in turn, inflated asset prices.
However, the change of action by central banks, which are currently reducing their balance sheets and increasing rates, might have a positive effect on the value premium as steadily rising rates lead to lower growth stock valuations.
“With this in mind, rather than abandon the value theme until its performance improves, we believe that this is exactly the time to adhere firmly to the time-tested principles of value investing – and not to give into irrational exuberance,” SSGA said.
“Like any investment, value is subject to cyclicality. During down periods in the cycle, investors can improve their long-term prospects for success by being discerning as they continue to invest in value stocks.
“To that end, we believe that a robust and multi-dimensional approach to value is essential for investors who seek to reap the benefits of value investing over the longer term.”
AUTHOR
Oksana Patron
Recommended for you
Financial Services Minister Stephen Jones has shared further details on the second tranche of the Delivering Better Financial Outcomes reforms including modernising best interests duty and reforming Statements of Advice.
The Federal Court has found a company director guilty of operating unregistered managed investment schemes and carrying on a financial services business without holding an AFSL.
The Governance Institute has said ASIC’s governance arrangements are no longer “fit for purpose” in a time when financial markets are quickly innovating and cyber crime becomes a threat.
Compliance professionals working in financial services are facing burnout risk as higher workloads, coupled with the ever-changing regulation, place notable strain on staff.
