Stocktake: Value rally has room to run, fund giant claims

Recent growth-stock slide ‘barely puts a dent in differential’ between value and growth

Growth stocks such as Netflix have suffered a sharp reversal in recent weeks. Photograph: iStock

Growth stocks such as Netflix have been a no-no for months, with investors instead preferring cheap value stocks. That’s unlikely to change any time soon, says value fund giant GMO.

Yes, value indices have trounced their growth counterparts this year. However, the MSCI ACWI Growth index outperformed its value equivalent by 265 per cent between 2009 and 2021, says GMO. The recent reversal “barely puts a dent in the differential”.

GMO examined 11 global stock market sectors, looking at the cheapest and most expensive third of stocks in each sector. They then looked at this differential and compared it to the past.

Currently, the valuation spread remains extremely wide. In most sectors, says GMO, the differential “remains in the most exciting” 10 per cent in history.