Investor interest will also depend on whether value or growth is doing better. After the 2016 election, it seemed value would be the winner. Investors expected higher inflation and interest rates that would benefit financial institutions—a dominant sector in the value space. But as inflation remained subdued in 2017, financials and other cyclical sectors lost ground to more growth-oriented technology and health-care stocks. By the end of the year, growth stock returns had outpaced value by a hefty margin.

Still, Finn thinks tax reform and a growing economy could have a positive influence on some value stocks this year. The now slashed corporate tax rate would likely favor industries and companies deriving all or most of their earnings from U.S. operations, and many of these are value stocks in sectors such as retailing, consumer staples and financials. Large multinational firms that have already figured out ways to lower their tax rates by stashing profits overseas, a group that includes many growth-oriented technology companies, would receive less of an immediate boost.

Financials, which account for around 25% of the T. Rowe Price Value Fund’s portfolio, are already benefiting from a less onerous regulatory regime under the Trump administration. Finn cites Wells Fargo, a longtime top 10 portfolio holding that “would probably have had a harder time with its cross-selling controversy under the previous administration.”

Investor expectations for rising rates, which typically benefit financials, are also helping the group. But financials and other cyclical value stocks are particularly sensitive to economic ebbs and flows, Finn warns, and if GDP growth fails to live up to expectations, the benefits of owning them could fade.            


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