Bloomberg Businessweek - USA (2020-12-07)

◼ FINANCE Bloomberg Businessweek December 7, 2020

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YUNUS: J. COUNTESS/GETTY IMAGES. ACCRA: PHOTOGRAPH BY NICHOLAS SENU ADATSI FOR BLOOMBERG BUSINESSWEEK.

DATA:

BLOOMBERG

2016,whilethosetrackingindustrialsreceived

themostsinceJanuary2018,andenergyETFstook

inthemostnewcashsinceMarchasoilrebounded

toa morethaneight-monthhighonNov.25.

Atitsheart,therotationis basedontheideathat

there’sa lotofmoneyintheeconomywaitingtobe

spentonthingsbesidesvideostreamingandonline

shopping.TheU.S.personalsavingsratewas7.2%at

theendof2019.ByAprilit hadsurgedto33.7%,and

it wasstill13.6%inOctober—almostdoublewhereit

startedtheyear.DepositsatU.S.commercialbanks

swelledtoalmost$16trillioninNovember,upfrom

$13.2trillionattheendoflastyear.If consumers

reverttotheirpre-pandemicways,thatcouldset

offwhatJimPaulsen,chiefinvestmentstrategistfor

theLeutholdGroup,hascalled“agrowthbomb,”

ascompaniesgearuptoreplaceleaninventories.

Fundmanagerswitha valuebiassaythereare

stillopportunitiestotakeadvantageofthechangein

investors’tastes.ChrisDavisofDavisFundspoints

tothebanksWellsFargo&Co.andCapitalOne

FinancialCorp.,whosepriceswerehammeredwhen

thelockdownsbeganinMarchandstillhaven’tfully

recovered.Davisthinksinvestorshaveoverlooked

howbankingregulationsenactedaftertheglobal

financialcrisishavemadetheselendersbetterable

tohandlerecessions.“Whenyoulookattheirvalu-

ations,theamountofcashtheyproduce,thecapital

ratiosthattheyhave,thereservesthey’vebeenable

toputup—theyreallyhavethischaracteristicofresil-

ienceanddurabilityandyetarepricedatthissortof

shockinglylowlevel,”hesays.

Thestarmoneymanagersofthegrowth-stock

world,whorodetheoutperformanceoftechto

dazzlingreturns,havealsotakennoticeofthe

shiftingmood.CathieWood,whosefirm,ARK

InvestmentManagement,runsthreeofthetop 10

best-performing ETFs this year, said in a recent

webinar that an economic recovery “may bene-

fit many value sectors in the short term.” But she

argues that even without a pandemic, many tradi-

tional industries are still vulnerable to being dis-

placed by new technology. “The value world will

be a little bit of a minefield,” she said.

Wall Street has heard the rotation song before.

What looked for a moment like some durable rota-

tions from growth to value in recent years ended up

fizzling out. And rotations don’t typically occur in

a perfectly orderly way—on some days the changes

in market leadership make it appear that investors

are once again more worried about the virus than

they are optimistic about vaccines. There’s still a

difficult winter and a U.S. presidential transition

ahead, and the economy could sustain more dam-

age than investors are counting on if Washington

doesn’tcomeupwithadditionaleconomicstimulus

and aid for laid-off workers.

So how long might this shift actually last?

“Everyone has been trying to time the growth-to-

value trade for years now,” says Dave Wagner, port-

folio manager and analyst at Aptus Capital Advisors.

This time, he thinks the turnaround brought about

by a vaccine could be enough to make a rotation

stick. “Unlike the past few times we’ve seen, there’s

a better backdrop for value,” he says. “You have a

longer runway that can continue to drive value for-

ward in the future, more so than growth.”

Rob Arnott, the founder of investment adviser

Research Affiliates, has for years been a steadfast

advocateforstockswithlowvaluationsanda skep-

ticofthegrowth-stockboom.“I’vebeencalleda

perma-bear,” he says. “But I love stocks when

they’re cheap.” Until pretty recently, that’s been

a tough stance to hold: Over the past decade, the

Russell index of value stocks has lagged growth

stocksbyanannualized6.7percentagepoints.But

Arnottsayswhenvalueis instyle,it candominate

fora longtime.Afterthetechbubbleburst 20 years

ago,theRussell 1000 ValueIndexdidbetterthan

theRussell 1000 GrowthIndexfromMarch 2000

untilAugust2006.“Theoriginaltechbubblein

2000—howmanyofthe 10 largestmarket-captech

stocksbeatthemarketoverthenext 10 years?”he

asks.“Zero.Notone.”

Onebigdifferencefrom2000:Growthandtech

stocksaren’texactlyontheropes—theyjusthaven’t

beenthefastestrisersinrecentweeks.Still,Arnott

saysthat,muchasin2000,investorsmayfinally

bestartingtoseegrowthstocksasoverpricedand

valuestocksasthebetterdeal.“Idothinkwe’re

goingtoseesomewherebetweenimpressiveand

stupendousoutperformanceforvalueoverthe

nextthreetofiveyears,”hesays.

Thetechnologybullsremainunflustered.Vance

HowardofHowardCapitalManagement,whichhas

betbigonthetech-heavyNasdaq 100 Index,says

techstocksarestilldoingwellenoughincompari-

sontovaluetosuggestthatmarketsentimenthasn’t

switchedyet.Hethinkssomeofthehypearound

therotationis a resultofvaluefundmanagerswho

missedoutonmostofthisyear’srallyandneeda

storytotellclients.“Alotofmanagerswanttostart

preachingtheirbookbecausethey’vegottomakeup

a reasonwhythey’redown,”hesays.Butfornow,at

least,investorswho’vetakentheroadlesstraveled

havesomegoodnumberstobragabout.�Michael

P.Regan,VildanaHajric,andClaireBallentine

THE BOTTOM LINE With a vaccine on the horizon, investors are

betting there’s a lot of pent-up demand that will start to flow to

companies beyond the usual tech winners.

▼Changesince Oct. 1

in Russell1000 indexes

Value

Growth

10/1/20 12/1/20

1 5%

0

-5