Roger Mortimer, senior vice-president of CI Investments in Toronto, predicts that market sentiment will begin to favor value stocks once the Fed raises rates. He notes historical data suggesting that following a period in which growth investing outperforms value investing, “value comes back strongly.”

From 1975 to present, value outperformed growth by a 2.9% compound annual growth rate (CAGR), according to Mortimer. In five of the eight five-year periods since 1975, value has outperformed. Mortimer says that growth has outperformed when there is excess liquidity, as in the 1995-99 internet bubble and the 2008-present post-QE period, during which growth produced a 16% CAGR to value’s 10.2%.

“In an environment where liquidity is abundant and money is cheap,” Mortimer explains in this Morningstar.ca piece, “it may be allocated with somewhat less discipline than when money is expensive. In an environment where liquidity is contracting and money is more expensive, investors are more discriminating about allocating it. They care more about valuations.” He points to his fund’s recent purchases of Apple and GE stock as examples of how a value approach can benefit from market volatility.