Is Value back, or do Growth managers still reign?

There is talk about how Value managers are back in vogue since Covid-19 impacted markets. Choosing undervalued stocks was made easier in the wake of a 30% market plunge.  Even so-called Blue-Chip stocks were trading at prices not seen since 2008. Later in the year, on the back of vaccine announcements, cyclicals and other beloved sectors of the Value approach rose to lofty heights well ahead of the bottom-line impacts to companies. Growth is dead. Long live Value!

Or is it?

What we do know is that Value management traditionally performs well through periods of economic activity and potentially rising inflation; yet this is not what we are seeing globally despite the excessive central bank stimulus in the wake of the pandemic. Pundits generally agree that this is due to the nature of government spending. This has largely been targeted at welfare and job security rather than economic stimulus and infrastructure. Inflation should be rising but it is not. The velocity of money in respective economies has also not significantly increased. What is stopping these otherwise supportive factors for Value to flourish?

The answer lies in the structural headwinds facing the ‘reflation story’ which would otherwise benefit Value managers. Two of these being Demographics and the accelerating Fourth Industrial Revolution. This raises an obvious question. Should investors and advisers ignore the short ‘time in the sun’ Value managers are enjoying today? Should they stay with the Growth managers that have generally outperformed over the past decade?