In their latest Q3 2021 Letter, Tweedy Browne says the rotation towards value is ongoing and sustainable. Here’s an excerpt from the letter:
Since the vaccine announcements last November, investors have been engaged in nothing short of an ongoing tug-of-war between the so-called “reopening trade,” which favors more economically-sensitive (often value) stocks, and the “stay at home” trade, which favors large technology stocks. Amidst this back and forth, rising vaccination rates around the world, coupled with the prospects for an eventual retreat of COVID-19, continue to fuel economic reopenings, corporate earnings, and, in turn, what has been an epic advance in global equities and other risk assets.
As a result, global equity valuations remain elevated, as overworked acronyms such as FOMO (fear of missing out) and TINA (there is no alternative) continue to influence investor behavior. Also, economic storm clouds appear to be gathering on the horizon in the form of recent increases in prices, inflationary expectations, and interest rates. The question of whether this inflationary threat proves to be temporary or more permanent will likely continue in large part to drive investor sentiment and stock prices in the near term.
We continue to believe that a strong fundamental economic recovery, fueled by accelerated reopenings across the developed and developing world, significant valuation disparities between value and growth stocks, and the prospects for increasing rates of inflation, inflationary expectations, and interest rates will, over time, favor value stocks. We are hopeful that what we have referred to, at times, as the “great rotation into value,” which began roughly a year ago, is still ongoing and sustainable.
You can read the entire letter here:
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