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Low level interest rates and historically meager GDP growth since the global financial crisis (GFC) have been meaningful drivers of the unprecedented outperformance of growth stocks. When growth is as scarce as it has been for the past ten years, investors have tended to pay a premium for companies that can demonstrate growth. Growth valuations have been further amplified by the lower interest rates that are used to discount future profits. However, in our view, this is all about to change - growth is vulnerable while value is potentially promising.
Compared with the response to the GFC, the US economy is expected to recover quickly post pandemic. This is because the Covid-19-induced recession was not the result of a bubble and there were no excesses for the economy to work through to return to growth.
US value has been more profitable and is forecasted to have higher growth in 2021 and 2022 than the core markets of the rest of the world, as shown below, where we compare the Russell 1000 Value – the primary US large cap value index - with the MSCI EAFE (the equity index that captures large and mid-cap securities for Europe, Australasia, and the Far East). Valuation is approximately the same, while debt levels are lower.
The more recent periods in which growth has massively outperformed value have been an anomaly. It can be easy to believe, leaning toward recency bias, that there will continue to be an extension of this growth phase and that individuals could hold a position for too long.
However, it is clear to us the market and its constituents are laying the foundations for an influential period of value over growth. This rotation towards value is boosted by massive fiscal stimulus and ultra-accommodative monetary policy.
Having been through these rotations for over 93 years, we believe the Amundi US equity investment team has the knowledge and experience to access genuine value, as well as growth companies we believe in. This actively managed approach to growth and value, in combination with a focus on sustainability that goes beyond ESG to include an assessment of the financials and competitive positioning of businesses, allows us the potential to take advantage of opportunities in any direction of the market and economic trends.
Unless otherwise stated, all information contained in this document is from Amundi Asset Management S.A.S. and is as of 4 March 2021. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management S.A.S. and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results.