Expert: Daniel White, Head of Global Equities, M&G Investments Moderator: Paul Kearney, Managing Director, Asset Risk Consultants (UK) Limited
Headlines:
- In 2022, value investing outperformed growth significantly
- Bloomberg's forecast of a US recession in the next 12 months contrasts with decreasing usage of the term "recession" in Bloomberg stories
- Enthusiasm for US tech stocks has diminished in 2023, with a significant performance shift from H1 to H2
- Value focus shifts toward sectors perceived as unloved, overlooked, or potential turnaround opportunities
Context:
Value vs. Growth Performance:
In 2022, value investing outperformed growth significantly, and in 2023 YTD, it has broadly outperformed in major markets except the US. This discrepancy suggests an opportunity as value has underperformed in the US, which contrasts with other markets.
Factors Impacting Value Performance in the US:
The discussion delved into the underperformance of value in the US, attributed to contradictory top-down forecasts indicating a potential recession against a positive underlying market narrative. Bloomberg's forecast of a US recession in the next 12 months contrasts with decreasing usage of the term "recession" in Bloomberg stories.
Catalysts for Potential Market Turbulence:
Identified potential market turbulence factors include the restart of student loan repayments, a potential US federal government shutdown, UAW strikes, decreasing personal savings, and a shift in consumer credit quality.
Tech Stocks and Market Dynamics:
Enthusiasm for US tech stocks has diminished in 2023, with a significant performance shift from H1 to H2. The market's excitement for AI-connected firms in H1 led to increased valuations, but H2 witnessed more subdued performance due to the pursuit of meaningful monetization.
Unprofitable Tech Companies and Value Focus:
The prevalence of expensive yet unprofitable tech companies is noteworthy, particularly with 80% of unprofitable stocks in the most expensive quintile of the US's largest stocks universe as of June 2023. Value focus shifts toward sectors perceived as unloved, overlooked, or potential turnaround opportunities.
Key Takeaways:
- The market's emphasis remains on anticipating a soft landing despite potential indicators of turbulence
- Value underperformance in 2023 seems unique to the US market, presenting a divergence from global trends
- The valuation gap between the top and bottom quartiles of the S&P500 remains considerable, highlighting a notable disparity in market segments
