Asset Allocation

A Broader Tilt to Value
Tim Murray, CFA Capital Markets Strategist, Multi‑Asset Division
Key Insights
  • We recently shifted to an overweight to value stocks, given attractive valuations and a potentially favorable economic backdrop.
  • Within the value universe, we are seeking opportunities in regions outside the U.S., such as Japan and emerging markets.

For the first time in over 10 years, we recently tilted our multi‑asset portfolios to an overweight position in value stocks relative to growth stocks.

Several years of underperformance by value stocks has led to a large difference in valuations between value and growth stocks, exposing attractive opportunities with meaningful upside potential. As we look forward to a post‑pandemic world, we believe that 2021 could be a period of significant global economic acceleration, an environment that typically favors value stocks.

Our tilt toward value includes regions outside the U.S., especially Japan and emerging markets. In Japan, equity markets are comparatively less expensive and, therefore, a good place to find potential value. Given Japan’s export‑oriented economy, Japanese equities are also more likely to benefit from increased global economic activity than from the nation’s domestic economy.

As outlined in the chart below, the MSCI Emerging Markets Index is dominated by technology‑heavy Asian stocks. However, other emerging markets regions—such as Latin America, Eastern Europe, Africa, and the Middle East—have greater exposure to value‑oriented cyclical sectors, which include financials, industrials and business services, energy, and materials. We believe that investors can better navigate and capture potential upside within this asset class through active portfolio management.

We think that 2021 offers the potential of strong economic acceleration, which could benefit portfolios exposed to value stocks. In our view, investors should consider broadening their search for value to regions outside the U.S. by incorporating actively managed strategies with strong stock selection to help discern and identify opportunities.

The Case for Value Stocks

Broadening the search for value

Broadening the search for value

Past performance is not a reliable indicator of future performance. Numbers may not total due to rounding.

Source: T. Rowe Price analysis using data from FactSet Research Systems Inc. All rights reserved. Russell and MSCI, see Additional Disclosures.

“Technology+” includes the information technology sector as well as the internet retail and interactive media industries, which are part of the consumer discretionary and communications sectors, respectively.

Additional Disclosures

London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2021. FTSE Russell is a trading name of certain of the LSE Group companies. Russell® is a trade mark(s) of the relevant LSE Group companies and is/are used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication. The LSE Group is not responsible for the formatting or configuration of this material or for any inaccuracy in T. Rowe Price Associates’ presentation thereof.

MSCI. MSCI and its affiliates and third party sources and providers (collectively, “MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. Historical MSCI data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

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Important Information

This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are those of the authors as of January 2021 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

This information is not intended to reflect a current or past recommendation concerning investments, investment strategies, or account types, advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Please consider your own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. International investments can be riskier than U.S. investments due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as specific country, regional, and economic developments. These risks are generally greater for investments in emerging markets. The value approach to investing carries the risk that the market will not recognize a security’s intrinsic value for a long time or that a stock judged to be undervalued may actually be appropriately priced. All charts and tables are shown for illustrative purposes only.

T. Rowe Price Investment Services, Inc.

© 2021 T. Rowe Price. All rights reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks or registered trademarks of T. Rowe Price Group, Inc.

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