In thanks partly to climate transition, Value stocks will continue to shine, says senior portfolio manager Colin Graham in an article for Robeco. Value began to emerge as the world rebounded from the pandemic, loosening growth stocks’ long reign, and has become more attractive as interest rates rise and more value-oriented companies offer a lower carbon footprint.
Whereas “growth style is undefined,” Graham says, “…value has a clear approach.” Of course, the biggest pitfall for value investing is the “value trap,” or when companies aren’t able to pivot out of a failing industry. Currently, 20% of many value funds are made up of tech and healthcare, which could be in danger of falling into a value trap. Furthermore, Graham doesn’t see any safe havens in the current market, as both equity and bond prices have declined.
The market began to shift away from growth in the third quarter of 2020, the article contends, and once the Fed stopped the flow of stimulus money into the market. Then towards the end of last year, yield curves started to get steeper, and then flatten. That scenario, Graham says, “created a catch-up for part of the value universe.” Value stocks then rallied again earlier this year as the Fed and the Bank of England started to raise rates to battle inflation, and Russia invaded Ukraine. Given those global events, the “value rally…is here to stay,” the article posits.
Graham is the senior portfolio manager on the Robeco Sustainable Multi-Asset Solutions team, and says that the company is “committed to climate transition” including in the value style. Even many of the big names in value recently “have environmental footprints that are 50% of their respective global equity benchmarks, and the style is still historically cheap,” Graham points out. Indeed, the current value rally is getting an extra shot of adrenaline from climate-conscious investors who are dedicated to reversing climate change and reaching net-zero emissions by the year 2050.