In November we identified a possible turning point in the under-performance of value, based on a sharp spike in the volatility of the Asia-Pacific Value/ Growth ratio, which resembled a similar event in the year 2000. The previous occasion marked the start of a long period of value out-performance.
This is important because a repeat outcome this time should be very positive for RV strategies, which naturally have a long value factor bias.
The key driver back in November was the emergence of data pointing to higher inflation. Inflation is typically negative for growth relative to value, as growth stocks are long-duration assets which are naturally more exposed to long-term rates.
Since November, the performance of Metrica’s relative value strategies has been consistently positive, suggesting that the turning point thesis is valid.
So now that we are in August, a frequent question from investors is: is it too late to take advantage of this trend?
We don’t think so for the following reasons: