Putting Premium Performance in Perspective
Gains in the tech sector last year, including strong performance from the companies known as the Magnificent 7, helped growth stocks outperform value stocks in the US. But the value premium was positive in other markets. And around the world, value beat growth in three-year averages. In a recent webcast, Co-CEO and Co-CIO Gerard O’Reilly talked about why it’s important to view value from a global and a historical perspective.
Looking Beyond the Magnificent 7
One of the big things that we saw this year was a lot
of focus on the Mag seven,
and while the Mag seven had very,
very strong returns over the course of the year,
and US large growth stocks had strong returns
over the course of the year,
there was strong returns in lots
of different asset categories
and lots of different markets around the world.
The US certainly led in terms of returns of
that almost 22% return at 26,
but developed ex US in emerging markets.
If we had told you at the beginning of the year
that they would return 17
and almost 12% respectively, you would've been very,
very happy with those returns over the course of the year.
So let's talk about the US then for a moment,
Russell 1000 value ended up about 11
and a half, 2000 value, 14 and a half or so.
Again, if we had told you those were the returns
that you were going to get from value stocks over the course
of the year, you would've been quite pleased
because those are returns that are somewhat in line
with historical average returns for value stocks.
But what did we see?
We saw outsized returns,
and particularly for large growth stocks.
So we have the Russell of 1000 growth there at almost 43%.
Now, certainly that wasn't expected
at the beginning of the year.
It's an unexpected outcome.
In some years, you're gonna get unexpectedly good outcomes
for groups of stocks,
but that should not change your expectation
about value premiums going forward.
Just to put it in context, for the next 30 years,
suppose growth stocks had a 43% return a year,
a million dollars invested today would result in
$45 billion in 30 years time.
How likely do you think that is, Mark?
That is not likely.
So while returns were very,
very strong on the growth side this year
and resulted in negative value premiums in the US only,
we would say that's kind of largely an unexpected outcome
with respect to returns.
Taking a Global View of Value
I think another story that was important for this year
that was probably somewhat overlooked
because of the Mag 7 and its dominance in the media
is what value premiums were in other markets
around the world.
So here, we're looking at international,
and the blue bars here represent the value premium.
And you see here outside the US very strong value premiums
in both developed markets and emerging markets last year.
But what also should be kept in mind
is that if you look over the past three years,
whether it's the US, whether it's developed markets
outside the US or emerging markets
incredibly strong value premiums
relative to their historical averages.
So here, up on the top, you see the long pull averages,
and there you see the value premiums.
So while there has been a lot of focus
on this big negative number here,
I think it's always important to celebrate
where the premiums have been strong
and the periods over which they have been strong
in recent times.