Our Asset Allocation Committee is fairly diversified between value and growth stocks. Japanification and disruption favor growth, while cheap valuations and transformation favor value.
In this market environment, we hold a fairly diversified position between value and growth stocks. To explain this diversified position, let me give my top two reasons to like growth stocks and then my top two reasons to like value stocks.
In favor of growth stocks: Japanification and disruption. In favor of value stocks: valuation and transformation.
So, for growth stocks, Japanification—being in a lower rate, lower growth environment for longer—is favorable. Those are companies that can do well even when we don’t see a cyclical upswing in the economy. On disruption, in growth stocks we find a lot more disruptors—those that dominate the digitization of the economy—than disrupted companies, which are mainly in the value stocks asset class.
In favor of value, well valuations are clearly favorable for value stocks. On transformation, companies will adapt over time and this will be the case for value stocks. Financial companies, banks for example, will diversify their revenues to be less dependent on interest rates, so think wealth management or trading. Energy companies will continue to improve capital discipline, as well as diversify towards renewables. So the idea of transformation over time could favor value stocks because they are cheap to begin with.
So from a tactical asset allocation perspective, at the moment we are not taking a large position between value or growth stocks.
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