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From stubbornly elevated inflation to persistently high discount levels for value stocks (vs. growth stocks and the broader market), we believe the current investing environment is supportive of an allocation to value management. After a prolonged growth-led cycle, however, finding a true value asset manager might not be as simple as it appears. Morningstar classified global equity large-cap funds with more than $100 million in assets under management (AUM) by exposure to what it considers value securities. It found that only 8% of the category’s AUM was in funds with more than 35% exposure to value securities, while 71% of AUM was in funds with less than 25% exposure to value securities.

From 9/30/20 to 12/31/22, the MSCI World Value Index outperformed the MSCI World Growth Index by 37.1% cumulatively.[1] Nevertheless, this outperformance did little to narrow the historically wide gap between the valuations for value stocks and those for growth stocks. At the end of this period, value stocks continued to trade at high levels of discount vs. growth stocks across various valuation metrics, indicating—in our opinion—that there is still a positive outlook for value.

We believe that after a decade of lackluster performance, the recent performance of value stocks (MSCI World Value) has been remarkable. It has also raised the question: Is it too late to tap into the potential of this style factor?

As value stocks have historically done well during periods of elevated interest rates, we believe now is an opportune time for investors to consider an allocation to this investing style.

Because markets historically move in cycles, with some asset classes having outperformed others one year and then underperforming them the next, diversification could help reduce the volatility of a portfolio’s returns.