Value Rotation—Spun Out Already? - Adviser Investments

Value Rotation—Spun Out Already?

Value Rotation—Spun Out Already?

You didn’t have to dig deep this year to find headlines proclaiming a revival of so-called value stocks, with outlets like The Wall Street Journal reporting that value investors “finally have a reason to celebrate.” But is that cycle already petering out?

Traditionally, stocks of well-established, profitable but slow-growing companies in sectors like energy, utilities, industrials and consumer staples—sectors which took a battering in last year’s pandemic downturn—are considered value stocks. Though the economic slowdown hurt Main Street, Wall Street rode to records on the backs of big-tech names like Apple, Tesla and Google, which benefited from the shift to remote work and school. As the economy opened, many analysts confidently predicted the switch would flip, with underpriced value stocks ready for a resurgence after being bested by growth stocks for over a decade.

And for the first quarter, that analysis seemed to be correct. With value stocks leading the way, the Dow Jones Industrial Average steadily outpaced the tech-heavy NASDAQ. Meanwhile, many small-cap companies benefited from the trend, as traders wary of overpriced and overplayed big-name tech stocks went searching for bargains among lesser names poised to bounce back as the economy continued to recover.

Over the last year, the Russell 2000 index of small-cap stocks gained 86.7%, easily outdistancing the 48.8% uptick in the large-cap S&P 500 index. More recently, however, large-cap stocks have begun to catch up: Since the start of April, the S&P has gained 5.5%, while the Russell 2000 is up about 6.7%, and the NASDAQ has come roaring back recently as well—up 8.3% over the past month compared to the Dow’s 2.4%.

The latest step back from small-cap and value stocks may be an indicator that the stock market as a whole has already priced in a strong rebound from the pandemic. Small-caps tend to outperform in the early stages of a bull market, while a strong outperformance by large-caps may mean that the bull market is aging.

All the back-and-forth aside, it may be too soon to call an end to value’s moment in the sun. The increasing popularity of so-called factor funds, particularly in the form of ETFs, may lend a helping hand to value stocks. One of the most popular factors that funds track is momentum—the tendency for a security whose price has recently swung up sharply to keep increasing. Traditional steady-Eddie value stocks have rarely made the cut to be bought up by momentum-chasing factor ETFs, but their recent rally may compel their inclusion.

What does that mean for investors? For us at Adviser Investments, it reinforces two of our most important maxims: What’s important is time in the market, not market timing. And, it’s crucial to have a well-diversified portfolio. As you can see from the charts below, both small-caps and value stocks have had moments in the sun in the past—but predicting exactly when the fickle traders of Wall Street will lose interest in a trend is a mug’s game.

Note: Chart shows relative performance between the S&P 500 and the Russell 2000 indexes. It does not reflect absolute performance. Indexes cannot be invested in directly. Historical returns are no guarantee of future returns. All investments and strategies discussed carry risk of loss. Data as of 12/31/20. Source: Morningstar Direct.
Note: Chart shows relative performance between the Russell 1000 Growth and the Russell 1000 Value indexes. It does not reflect absolute performance. Indexes cannot be invested in directly. Historical returns are no guarantee of future returns. All investments and strategies discussed carry risk of loss. Data as of 12/31/20. Source: Morningstar Direct.

That’s why our policy is to seek out managers who can generate outperformance regardless of current market conditions—and avoid mindless trend chasing.

Podcast: Betting on Munis as America Rebuilds

Faster, cheaper internet, pothole-free roads—what’s not to love? Well, paying for it. That’s where municipal bonds come in. In this episode of The Adviser You Can Talk To Podcast, Director of Research Jeff DeMaso is joined by Senior Vice President, Fixed Income Chris Keith and Research Analyst Jennifer Zebniak to talk through the ins and outs of muni bonds and the promising prospects for the sector.

Topics include:

  • Why munis have outperformed the rest of the bond market so far in 2021
  • How the federal government’s infrastructure push could impact the sector
  • Whether new types of munis will soon be available to investors
  • Why inflation may be less of a threat to munis than to other fixed-income investments

Municipal bonds’ lower volatility and their tax advantages can make them a useful tool in an investor’s portfolio. Click to listen now!

Watch Our Quarterly Webinar!

Adviser Investments’ Second-Quarter Webinar, Inflation, Inoculation and Infrastructure: Defining the New Normal, is happening today, Wednesday, April 28 at 4:30 p.m. (EDT). Sign up here to receive an email with a link to the on-demand replay.

This interactive discussion includes our thinking on the markets and economy as they relate to the economic recovery and lingering impacts of the pandemic. You’ll hear from Chairman Dan Wiener and Director of Research Jeff DeMaso, and have your questions answered by Chief Investment Officer Jim Lowell, along with other members of our investment team.

As we look ahead to what the rest of 2021 may bring, we believe that untapped opportunities remain for investors with well-diversified portfolios—and we’re eager to share our thinking with you.

Adviser Investments’ Today’s Market Takeaways

There’s no shortage of hyperbolic headlines and provocative punditry in the financial media. But you won’t find such hysterics here. In Today’s Market Takeaways, members of our investment team provide timely videos that clearly and concisely explain what we’re seeing in the markets.

Vice President Steve Johnson discussed the market’s reaction to the Biden Administration’s plans for a capital gains tax hike, while Research Analyst Liz Laprade talked about their potential long-term impact.

We hope you find these episodes engaging and accessible, and please let us know if there are any topics you’d like to hear us address by sending an email to!

About Adviser Investments

Adviser Investments is a full service wealth management firm, offering investment management, financial and tax planning, managed individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trusts, institutions and foundations since 1994, and have more than 3,500 clients across the country and over $6 billion in assets under management. Our portfolios encompass actively managed funds, ETFs, socially responsible investments and tactical asset allocation strategies, with particular expertise in Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To.

Our minimum account size is $350,000.  To see a full list of our awards and recognitions, click here, and for more information, please visit or call 800-492-6868.

Disclaimer: This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Our statements and opinions are subject to change at any time, without notice and should be considered only as part of a diversified portfolio. Mutual funds and exchange-traded funds mentioned herein are not necessarily held in client portfolios. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

You may request a free copy of the firm’s Form ADV Part 2A, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.

Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional, or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.

The Barron’s America’s Best Independent Advisers rankings consider factors such as assets under management, revenue produced for the firm, and quality of practice as determined by Barron’s editors. According to Barron’s, “around 4,000” advisory firms were considered for this recognition in 2020; with about 1,200 firms receiving recognition. The award sponsor has not disclosed how many firms were surveyed or considered for this recognition, nor the percentage of total participants that ultimately received recognition. For more information and a complete list of recipients visit Years Received: 2020, 2019, 2018, 2017, 2016, 2015 & 2014.

The Barron’s Top Advisor Rankings by State (Massachusetts) (also referred to as Barron’s Top 1,200 Financial Advisers) considers factors such as assets under management, revenue produced for the firm, regulatory record, quality of practice and philanthropic work. According to Barron’s, “around 4,000” advisory firms were considered for this award in 2020, with about 1,200 firms receiving recognition. For more information and a complete list of recipients visit Years Received: 2020, 2019, 2018, 2017, 2016, 2015 & 2014.

The Financial Times 300 Top Registered Investment Advisers is an independent listing produced annually by the Financial Times and Ignites Research. According to the Financial Times, in 2019, approximately 2000 firms were invited to be considered for its list; 740 responded, with 300 being named to this list. The listing reflects each practice’s performance in six primary areas: Assets under management (70-75% of a firm’s score), asset growth (15% of a firm’s score), years in existence, compliance record, credentials and online accessibility. For more information and a complete list of recipients visit Received: 2019, 2018, 2016, 2015 & 2014.

Awards referenced above do not consider client experience and are not indicative of such. Nor are awards indicative of future performance. Unless otherwise noted, Adviser Investments does not pay a fee to participate in any of these awards. Additionally, awards typically only consider and recognize participants that choose to participate; and are often based on information supplied by the participants—such information should not be assumed to be verified by the sponsor of the award.

The Adviser You Can Talk To Podcast is a registered trademark of Adviser Investments, LLC.

For a summary of Adviser Investments’ advisory services and fiduciary responsibilities to our clients, please review our Form CRS here.

© 2021 Adviser Investments, LLC. All Rights Reserved.