Global Market Commentary

Growth Versus Value:  Time For a Rotation?  

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For the first several years of the post-recession period, U.S. growth and value stocks tracked one another pretty closely.  They began to diverge in 2014, and in 2017, that divergence accelerated rapidly.

Source:  Bloomberg Finance LLP

Does the recent faltering of tech tell us that a change may be coming — that growth stocks as a whole will falter and yield leadership to value?

We don’t know, although we suspect not.  We prefer to look at stocks not in terms simply of value or growth, but in terms of “growth at a reasonable price,” or GARP.  Sometimes growth outperforms, but in our view, GARP always outperforms.  Therefore we are focused not on growth stocks in general, or on value stocks in general, but on stocks with growth that are selling at reasonable earnings multiples compared to those of the broader market.  That is, growth stocks selling at earnings multiples similar to lower-growth companies, or to companies with lumpy and unpredictable growth.

Investment implications:  Growth or value?  We’ll take GARP, and stocks with GARP characteristics can be found across many sectors and industries.