Higher interest rates and runaway inflation continue to put pressure on the riskiest areas of the stock market. This includes richly valued high-growth companies with minimal profits. At the same time, value stocks have begun to assert themselves as performance leaders. Can the trend continue?

In reality, the outperformance of value stocks over growth started roughly two years ago.

After Pfizer’s announcement of a Covid vaccine in November 2020, the MSCI World Value Index began outperforming the MSCI World Growth Index by over 15%.

ETFs linked to U.S. value stocks have exhibited the same kind of market-beating trend.

The Vanguard Value Index Fund ETF (VTV) has gained 33.64% over the past two years while there’s been a gain of only 7.78% for the Vanguard Growth Index Fund ETF (VUG). Moreover, it’s been a winning strategy for funds to have more value stocks than the style neutral SPDR S&P 500 ETF (SPY). The Vanguard value fund outperformed SPY by an impressive 12.51% over the same two-year time frame.

For financial advisors, the message should be clear: Value investing is back, so allocate client money accordingly.

The history of markets teaches us that investing styles don’t just take their turn in the limelight, but the duration of time they spend on top can last over a period of years.

After the dot-com crash, value stocks experienced a performance edge of 90% that lasted for seven years. Then in 2007, growth stocks came roaring back and outperformed their value peers for an incredible 13 years. Throughout that last painful period, value stocks universally posted disappointing results against securities across multiple industry sectors and geographies.

Despite the recent outperformance of value ETFs, a research piece from J.P. Morgan Asset Management published earlier this year indicates that valuations among value stocks are still attractive. “Valuation spreads between value and growth stocks remain very wide. Spreads are still more extreme than at the height of the dot-com bubble.”

Another bullish factor is people’s continued underinvestment in value stocks.

First « 1 2 » Next