Saturday, March 12, 2016

Barron's Cover: Value Investing May Be Coming Back

As noted in December's "Paris Climate Agreement: How The Hell Am I Supposed To Trade This Crap?":
..More to come but for now it looks like it's back to the daily grind, maybe front-run the shift from growth to value, except the reinsurers, short the reinsurers, the bastards.I hope next year's hurricanes go straight to Zurich. And then Munich.
Speaking of Munich, maybe there'll be a Hitler Downfall parody. That would be nice.
Well, it's only eleven months until COP22 in Marrakesh.
That's something. 
It looks as if the shift from growth to value started in late January and started becoming pronounced at the February 11 market bottom.
Plus we got a Downfall parody on negative rates from someone who seems suspiciously conversant with the subject matter.

From Barron's:

Move Over, Facebook and Netflix: Value Investing Is Rebounding
After nine years of underperformance, value stocks look poised to take the baton from, Facebook, and other growth stocks.
The past decade hasn’t been kind to devotees of legendary value investor Benjamin Graham. Value stocks, underpriced relative to corporate fundamentals, have trailed the broad market as investors embraced growth stocks, notably the so-called FANGs, or Facebook,, Netflix , and Google, now known as Alphabet

These highfliers powered the Russell 1000 Growth index to a 5.7% total return last year, nine percentage points ahead of the Russell 1000 Value index, marking the widest performance gap since 2009.
The growth stocks in the Russell 2000 index of small-cap stocks similarly bested the value stocks in the small-cap benchmark, in this case by six percentage points. 

In recent months, however, the market’s leadership has begun to change, as growth stocks have grown too rich for investors’ liking, and value stocks too cheap to ignore. The value stocks in the large-cap Russell 1000 are down just 0.4% this year, while the growth stocks in the index are off 2.2%. Three of the four FANGs are in the red. Amazon (ticker: AMZN) has fallen 15% after gaining 90% last year. Only Facebook (FB) is up. Among small-caps, value has a seven-percentage-point lead over growth names.

“It has been a good month for value,” says Rich Pzena, chief executive officer at Pzena Investment Management, a New York–based value manager. “It’s hard to say if it’s the turn in the value cycle. We hope it is.”

Nearly all investors proclaim that their favorite stocks are value stocks. But traditional value investing—often focused on stocks with low price/book or price/earnings ratios—is due for a comeback. “We’ve had nine years of systematic value underperformance,” says Scott Black, president of Delphi Management in Boston and a member of the Barron’s Roundtable. “It has been the longest period of growth outperformance in my career.”

Black, a value investor, has been running money since 1979.

Value managers are encouraged that prior periods of growth outperformance, including the Nifty Fifty market of 1966-73 and the technology bubble of 1998-99, were followed by strong periods for value investing, including seven straight years of value outperformance from 2000 through 2006.

“Momentum stocks trade at an extreme premium to value stocks, with the valuation spread the highest since 1980, except for during the tech bubble,” JPMorgan strategist Dubravko Lakos-Bujas wrote last week.
Many momentum stocks, characterized by strong price performance, are also growth stocks, or shares of companies whose earnings are expected to grow at a faster rate than the market. Growth-oriented companies, from Netflix (NFLX) and Alphabet (GOOGL) to Starbucks (SBUX) and Visa (V), have delivered impressive revenue and earnings gains in recent years, notwithstanding weak economic growth. 
But profits of companies in the financial, industrial, retailing, and energy sectors often have disappointed.
Lakos-Bujas wrote that the momentum trade was “crowded,” due in part to the “proliferation” of passive quantitative equity-investment strategies such as “smart beta,” which often use a momentum approach. Smart-beta investors try to tweak benchmarks like the Standard & Poor’s 500 index to outperform them. (For more on smart beta, see “Beating the Index,” in this week’s ETF pullout section.)

THERE ARE HUNDREDS, if not thousands, of value plays in the market today, ranging from individual stocks to mutual and exchange-traded funds. We’ve listed 12 stocks, two ETFs, and two mutual funds in the table nearby. The stocks include Citigroup (C), Goldman Sachs Group (GS), Time Warner (TWX), Intel (INTC), and Boeing (BA), and the ETFs are the iShares Russell 1000 Value (IWD) and iShares Russell 2000 Value (IWN)....MORE