During his recent interview with Barron’s Live, Rob Arnott discussed value is now ahead of growth decade-to-date. Here’s an excerpt from the interview:
Arnott: Now here’s a surprise. How many of our listeners believe that including the value crash in the COVID market where value in the first eight months of the decade underperformed growth by 4,000 basis points, 40 percentage points spread between Russell growth and Russell value? How many of the listeners are aware that value is now ahead of growth decade to date? Even I was surprised by that.
Lauren Rublin: We have no way of taking a poll here. But…
Rob Arnott: Yeah, the listeners can ask themselves the question, am I surprised by this? Just think in terms of if you lose 40% for value relative to growth, to just get back to normal value has to beat growth by 67% just to get back to break even. It’s done that. Value is now ahead of growth decade to date.
Wow, so is it too late? Back to your question, is the death of value premature? My short answer to that would be we’ve gone about halfway back from the extremes of valuation in summer of 2020, back to historic norms, that leaves plenty of room for this to run for years to come.
Now there’s another backdrop to this that’s just fascinating. Inflation is wonderful for value stocks. If you go back over the last hundred years, any decade where we had inflation higher than 4% for a decade, value historically beat growth by anywhere from 6% per year for the decade to 10% per year for the decade.
And this decade looks poised to be not unlikely to come in above four as an annualized inflation rate for the decade, we’re at five and a half decade-to-date through today. And it wouldn’t require much in the way of elevated inflation through the end of the decade for it to average something north of four. Our own forecast is 4% for the coming 10 years, let alone the current decade.
You can listen to the entire interview here:
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