A recent Barron’s article by contributor Mark Hulbert suggests that, even though value has once again fallen behind growth, “new research provides yet more evidence that value is a good bet to outperform growth in coming years.”
The study, by AQR Capital Management, suggests that value’s recent lag is “merely a pause on the way to a sustained period of strong relative performance over growth,” Hulbert writes. He cites comments from a recent webinar in which AQR founder Cliff Asness explained why.
Specifically, AQR’s findings showed that value’s outperformance of growth beginning last fall “barely put a dent in investors’ collective preference for growth stocks over value, “adding that the price differential between the two is still huge. And regarding earnings, the AQR study found that analysts’ earnings forecasts don’t show such a big difference between growth and value. Instead, they are projecting that the relative five-year EPS growth rates are about the same today as the historical average—in other words, earnings forecasts don’t explain why growth is so expensive compared to value.
“It’s in the resolution of this disconnect between the fundamentals,” writes Hulbert, that leads Asness to his conclusion that value is “far more compelling than growth.”
Hulbert notes, “It’s worth emphasizing that, even though Asness believes value will outperform growth in the coming years, he advises that your equity portfolio be diversified and exposed to other factors in addition to value, including quality and momentum.”
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