Investors have a second chance to rotate into global value stocks, according to a recent note co-authored by Research Affiliates founder Rob Arnott.
A year ago, value stocks experienced a strong rebound after having been hammered by their growth counterparts in prior years. However, they subsequently faltered as the Delta variant swept across the globe, with the value rebound giving up almost half its gains by May 2021 as investors rotated back into highly profitable tech stocks.
Those same tech stocks suffered badly as bond yields spiked last week. Growth stocks look expensive, but value stocks, even after the partial rebound, look a decent bet – in the US, says Arnott, the discount is wider than the discount seen at the height of the dotcom bubble.
Barclays make a similar point. Defensive and quality tech stocks are "very well owned" and may remain under pressure if rates continue to rise.
“As the direction of travel is towards tighter policy, we believe the latest (painful) rotation in market internals has legs, as investors are not positioned,” says Barclays. In other words, rotating back into value stocks is the current “pain trade” in markets.
