Here are some points to use in client meetings when suggesting the appropriate addition of value stocks or allocation increases, if warranted:
• Many value stocks have a history of paying healthy dividends, meaning superior dividend yields.
• Along with the downside protections of buying value stocks cheap—they currently have the widest relative performance spread against growth in several years—the category may now be positioned to help portfolios offensively as well.
• As of August, relative S&P 500 sector weightings for value against growth were bullish indeed, with consumer staples, financials, energy and utilities. In September, the category continued to improve, with some mid-cap value ETFs benefitting from double-digit increases by month’s end.
• To the extent that a client—and his or her advisor—is optimistic about the near-term prospect of a deal to end the trade war with China, owning more value and less growth could be viewed as positioning nicely for this event (as could favoring small cap over large and international over domestic). The mere fact of a deal, or its perceived imminence, might be more impactful than the actual terms, as this would tamp down headlines that tend to suppress the market. And the disappearance or mere diminution of such news coverage would benefit value more than growth, relatively.
• Along with a move to value would come a coincident opportunity to acquire some big names that are hanging out—for now, at least—in the valueish section of the style box. Recently, some tech companies—including Google, Amazon and Facebook—had acquired value characteristics. The likely reasons for this new—and temporary—style box status are exogenous factors affecting market perception, including the trade war and fear of regulation. These factors have pushed prices down while surface revenues and earnings have continued to grow.
As of October 23rd, Facebook shares were trading about 15% off its high, hit in mid-summer 2018, and Amazon shares were 13% off their September 2018 high. Albeit back near previous highs, Google (Alphabet) shares have been treading water since the summer of 2018. These values should be viewed in the context of all three companies’ history of halting upward climbs—substantial spurts interrupted occasionally by stalls, albeit with occasional short-term fluctuation. For now, at least, these values suggest an opportunity for tech BARP (behemoths at a reasonable price).
These points may hit home with clients who want to prepare for the possibility of a near-term bear in a practical way while still positioning for portfolio growth—if they can be persuaded to turn a deaf ear to negative market noise.
Dave Sheaff Gilreath is a founding principal of Sheaff Brock Investment Advisors LLC, an equities management firm in Indianapolis. The firm started in 2001 with $60 million in assets. Today, it has AUM of more than $1 billion.