Nomura: Seismic Shift from Growth to Value

Since the aftermath of the bankruptcy of Lehman Brothers back in mid September 2008, growth investment outperformed value investing.  Year to date, growth investing has also been a steady outperformer, gaining 9.4% , compared against action in value names that have left the S&P 500 value index little changed.

2018-07-30, Morgan Stanley said the outperformance by growth had it poised for an eventual reversal.

2018-07-31, Charlie McElligott, Head of Cross-Asset Strategy at Nomura, said the “three-day move in US ‘Value/Growth’ has been the largest since October 2008, a 4.3 standard deviation event relative to the returns of the past 10 year period…”

The triggering point is the stumbles of share price seen in FAANG (Facebook, Apple, Amazon, Netflix, Google) names .

The chart below which shows a growth/value ratio over the past decade:

Popular growth investing strategies, reflecting companies whose profits grow consistently and at faster clip than the overall market, have by far been the best performers in recent years, compared against traditional value investing, buying shares that are viewed as priced beneath their inherent value.

However, it remains to be seen if the recent moves represent a sea change for a reemergence for value, which has been overshadowed by growth plays, or if moves of the past few days are a blip. As the “rotation” might not necessarily resulted in growth to value investing.  Rather, it could be about selling the winners that happens to involve growth stocks.

Reference:

MarketWatch, Mark Decambre, 2018-08-01, “The Stock Market Just Experienced the Most Shift from Growth to Value Since Lehman Brothers, says Nomura”