January in Charts: Value Comes Back in a Big Way

It’s only a month, but value stocks have significantly outperformed growth out of the gate in 2022. While we won’t try to make a call on whether this is a long-term rotation, we don’t find the outperformance surprising, and see a few reasons why it could continue.

The argument for value starts with inflation, which hit 7% annually in December, the highest level in 40 years. With rising inflation comes higher interest rates, and that doesn’t augur well for the valuations of growth stocks, whose future earnings start to get discounted at higher rates.

Just how much rising rates affect growth stocks is up for debate, but a recent Institutional Investor article referenced a study from InvestmentMetrics that estimates value stocks would outperform growth stocks by 100 basis points for every 10% rise in interest rates.

Another reason value stocks should outperform in an inflationary environment: Value indices are more heavily weighted to cyclical sectors that would benefit from an inflationary environment. The financial sector — an area of focus for Prospector — could be a key beneficiary as rising rates boost to bank earnings.

Readers of our blog know we have been discussing the threat of inflation for some time now. But after a year of rising prices, and the Federal Reserve acknowledging the risk has grown, investors may want to make sure their portfolio is positioned for it.

2022.01 Prospector Blog Value Comes Back Chart 1



New call-to-action

 

Sign Up To Receive Our Market Insights.

 

 

The views described herein do not constitute investment advice, are not a guarantee of future performance, and are not intended as an offer or solicitation with respect to the purchase or sale of any security. Investing involves risk, including loss of principal. Investors should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. Please review the offering memorandum or prospectus of a Fund for a complete discussion of the Fund’s risks which include, but are not limited to: possible loss of principal amount invested; stock market risk; value risk; interest rate risk; income risk; credit risk; foreign securities risk; currency risk and derivatives risk.

Nothing contained herein constitutes investment, legal, tax, or other advice nor should be relied upon in making an investment or other decision. Any projections, outlooks or estimates contained herein are forward looking statements based upon specific assumptions and should not be construed as indicative of any actual events that have occurred or may occur. 

This site uses cookies to enhance your website experience. By subscribing to our Market Insights, you are agreeing to our use of cookies. See our cookie policy here