A major stock market shakeout at the end of 2018 was canceled out in the first few months of 2019 before wobbling again in March, after the US Federal Reserve unexpectedly changed course. Fears that the US is long overdue for a recession, as western economies are in the ‘late cycle’ period more than 10 years after the financial crisis, continue to make investors jittery.
Such market conditions generally do not favor value investing, which seeks to find those companies whose potential is not reflected in its current share price, providing the potential for upside. When markets wobble, investors tend to flock to ‘safe haven’ growth or defensive stocks whose shares do not meet the value criteria.
That in turn means value funds can underperform benchmarks that are loaded with growth stocks such as e-commerce companies, or defensive stocks such as utilities. Subsequently, the value style has consistently underperformed over the last decade, prompting many to question whether the cyclical nature of investing will bring its eventual return.
In this special article, Boston Partners co-CEO and portfolio Manager Mark Donovan looks back on his experience as a dedicated value investor for decades to highlight the universal truths that can guide all investors in a transitioning market.