What’s also quite telling about the recent shifts across and between value and growth indices are the sector dynamics—mainly the blurring of lines and the growth of the technology sector within the Russell 1000 Value index, which was the sector that saw the largest increase in weight on the value index in June 2022.
Semiconductors, however, are an industry that both growth and value active managers currently favor, with many active managers feeling that the sector is in a period of secular growth. Furthermore, some names feature across many growth and value portfolios alike. Likewise, within the healthcare sector, pharma and biotech are terms often used interchangeably despite clear differences in the development of their therapies. Healthcare is the second fastest growing sector behind technology since 1986 yet trades at a near record discount to defensives (staples) and growth (tech) peers (Factset, May 2022).
Blurring Lines And What They Mean
In our view, the growth vs. value debate, and a staunch defense of either, in the current markets are more likely to result in missed opportunities than anything. If managers are still in the mindset that a name is either one or the other, they might need to take a deeper look, and the most prudent approach in the current environment is one that incorporates elements of both value and growth investing—an active management strategy that relies on fundamental analysis on a name-to-name basis.
The often-dramatic swings in the markets over the past several months, as recession fears loom and central banks globally ratchet up their efforts to combat historically high inflation, have driven many historically growth-oriented names into valuations that are becoming attractive to value investors. However, there will always be positive value stories in a growth market and vice versa.
In today’s markets, growth vs. value is looking much less like a debate, and more like a friendly conversation.
Don Klotter is managing director of New Capital, an EFG brand. Jeff Cullen is managing director of Schafer Cullen Capital Management, Sub-Advisor EFGAM-New Capital.