Value rotation underway
Lonsec data has revealed the extent of the recent rotation away from growth stocks showing that value stocks are back in favour.
The research house found that in the 12 months to 31 December 2021, 61% of value funds outperformed the S&P/ASX 300 TR Index, up from a mere 5% over the five years to the end of December 2021.
This tilt towards value funds was most stark for the rolling year to 28 February, 2022, which saw 91% of value funds outperform versus 46% of growth funds.
Lonsec director of research, Peter Green, said: “We have seen a growing shift in the market over the past 12 months, but this has really picked up in the last three months with outperformance jumping from 61% to 91% of value funds. While outperformance is unlikely to stay such a high level for a sustained period of time, market conditions do now favour value managers”.
The key drivers of this value rotation, according to Lonsec, were the spectre of rising interest rates and a belief from investors that inflation was gaining momentum as the COVID economic recovery took shape in an environment still impacted by supply chain disruption, tight labour markets and loose monetary policy.
Investors had increasingly been pricing in this eventuality, bidding down long earnings duration assets whose valuations are more interest rate sensitive and rotating into ‘value’ stocks like diversified miners and financials likely to benefit more from the macro environment.
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