Value strategies are making a comeback, but is the comeback sustainable?
Kinnel noted that the tide started to turn for value during the market selloff in September and again in October.
“And then in November, the rally really kicked in, and value outperformed on the upside, and it’s been doing that ever since.”
Dziubinski asked about value’s outperforming growth, and whether market capitalization is playing any role.
According to Kinnel, small-caps have performed dramatically better than large-caps. He said the rally is driven by a stronger-than-expected economic recovery, thanks partly to vaccines and partly to stimulus.
“Small-caps tend to be more economically sensitive. Value tends to be more so. So, small-caps have done better, value’s done much better than growth.”
He said that from September through mid-March, large value gained about 24% versus 8% for large growth. During the same period, in small-caps, value has recorded about 51% versus 32%.
Finally, Dziubinski asked Kinnel her “million-dollar” question: “Do you really think value strategies are going to be able to maintain this momentum and continue these winning ways?”
A hard call, Kinnel said, one he would not go out on a limb for.
“But if you look, value is still behind growth if you go back to, say, the beginning of February 2020 when COVID was starting to hit the world. And then obviously, if you go back further — trailing three, five and 10 years — growth is still ahead of value.
“That would seem to imply that value could have more to run, and certainly in market history, generally, that’s the way it works. You have one, you tend to overdo it. So, we overdid the growth rally, maybe we’ll overdo the value rally now.”
Check out the gallery to read more about four value funds Kinnel discussed in the podcast.