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Industry Voice: Are you ready for a decade of Value?

  • Heather McPherson, Portfolio Manager, T. Rowe Price US Large‑Cap Value Equity Strategy
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Since the end of the global financial crisis, more than a decade ago, growth stocks have significantly outperformed their value stock counterparts. Given the dominance of growth stocks over this extended period, many investors now believe that value is due a comeback – and that 2020 could be the year. While there are no apparent signals to suggest that such a trend reversal is imminent, history shows that when it does occur, the change tends to be abrupt and extreme.

Over long time periods, value stocks have historically outperformed growth stocks. But the relative performance tends to be cyclical -raising the question of the timing of a reversal. While it is impossible to accurately time such a change, relative valuation can often be the catalyst. As we begin 2020, the outperformance of growth over value in the U.S. equity market is just shy of the all-time peak of growth outperformance, reached in early 2000 - right before the tech bubble burst.

Is a value comeback imminent?

The short answer is that it is impossible to predict when the trend may reverse. However, over the 10-year period ending 30th September 2019, value underperformed growth by 1.5 standard deviations relative to its average 10-year performance, based on 10-year rolling periods starting in 1926. And following periods of such extreme dispersion between the two styles, history shows that the odds of value outperforming growth over the subsequent three to five years are very high - greater than 70% .

Past performance is not a reliable indicator of future performance. 
Source: Refinitiv Datastream. © 2019 Refinitiv. All rights reserved. Comparison of Russell 1000 Growth Index and Russell 1000 Value Index (% total returns) for 10-year period ending 30th December 2019.

The growth style's dominance since the global financial crisis has been particularly propelled by a narrow group of technology titans - the so-called FAANG stocks (Facebook, Apple, Amazon, Netflix, and Alphabet's Google), which have benefited from a strong U.S. consumer as well as robust global growth.

 

 

Important Information

For professional clients only. Not for further distribution.

This material is being furnished for general informational purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, and prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.

The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.

Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources' accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.

The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.

It is not intended for distribution to retail investors in any jurisdiction.

This material is issued and approved by T. Rowe Price International Ltd, 60 Queen Victoria Street, London, EC4N 4TZ which is authorised and regulated by the UK Financial Conduct Authority. For Professional Clients only.

© 2020 T. Rowe Price. All rights reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks or registered trademarks of T. Rowe Price Group, Inc.

 

 

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