So-called “value” stocks fell twice as much as “growth” stocks during the market crash on Thursday. Do you know who will not be surprised? Ben Inker.
Earlier this week, I met with GMO’s director of investment, a Boston-based white fund management firm. He again beat the table in favor of valuable stocks, which GMOs are expected to outpace growth over the next few years.
Value stocks tend to be stocks that are cheap relative to current earnings and dividends. Growth stocks tend to be expensive compared to current profits and dividends, but the stock market is growing on the basis of future prospects.
It has been just over 18 months since GMO launched a private hedge fund for wealthy institutions and clients that relies on both value and rising stocks. The timing for the business was great. They launched a so-called “stock deployment” strategy in October 2020, just as the market was about to begin a sharp transition from growth to value.
Yield after: 18%, according to the company’s latest publication.
“It’s called Equity Dislocation because what we’re trying to do is make money for customers through the dislocation we see between valuable stocks and growth stocks around the world,” says Inker. According to him, the gap in the assessment between them when the GMO launched the strategy was about as big as ever. “We launched it because we saw the biggest gap between valuable stocks and emerging stocks – apart from the TMT event (ie technology media and telecommunications or the 1999-2000 dotcom bubble), there is nothing like it in the data.”
Inker believes that in the coming years the cost will far exceed growth.
Thursday: Vanguard Value VTV,
fell about 2%, but Vanguard Growth VUG,
What does this mean for the rest of us trying to manage our 401 (k) investments? It may be nice to be able to make money in any market by betting on certain stocks and against others, but I have long been skeptical of hedge fund strategies in general.
We can do ourselves a great service by simply investing in value. As long as stocks generally bring good long-term returns, if “value” wins, we will be fine.
Inker says GMOs still see the best investment opportunities abroad, not in the United States. GMO believes that Japanese stocks and emerging market stocks offer the best trade-off between risk and return in the current environment, particularly (naturally) Japanese stocks and emerging stocks.
The GMO version of “values” is more complex than those you usually find in the markets. The company takes into account future profit forecasts to create a discounted cash flow. “The value model we use for this strategy is what we call the price-fair value ratio,” he says. “This is a price / discount cash flow model. He is willing to pay for quality.
Among the investment options available to the rest of us are Vanguard Value (VTV) for the US, iShares MSCI Japan Value EWJV,
and iShares MSCI Japan Equal Weight EWJE,
for Japanese value and Avantis Emerging Markets Value AVES,
arise. State Street manages low-cost exchange-traded funds that combine value, quality and low volatility in stock selection: SPDR MSCI US StrategicFactors QUS,
EAEO (International) QEFA,
QEMM strategic factors for emerging markets
and QWLD World,
The EAFE version is 25% invested in Japan.
Is it time for quality and value? Let’s see.