- A shift in macro backdrop – both rising growth and inflation expectation - is perhaps the most significant catalyst for Value outperformance. Our macro view sees concurrent upside risk to global growth and inflation this year which provides a conducive macro setup for a sustained Value rally.
- On the basis of upside risk to inflation and growth, we see room for 10Y treasury yields to climb. History also suggests that current spread level is only halfway to its potential peak. Taken together, potential curve steepening can signal further Value rally.
- EPS momentum has swung in favour of Value (vs Growth) as higher EPS revision were penciled in at an increasing rate since 4Q20. Fundamental improvement may justify and support further re-rating ahead. Despite Value’s recent rally, its relative valuation (vs Growth) is close to depressed level, which implies ample room to re-rate.
- Value might be at a fulcrum point where a sustained Value rally looks promising. Considering the run up in cyclicals, leaning into the Value factor may end up being a more robust expression of the ‘Reflation trade’. We see great merits in introducing Value into the portfolio and believe a blended-style may be the most ideal in the current market narrative.
Value, the comeback kid
Chart 1: Value has largely underperformed Growth since ’07…

Chart 2: …However, Value made a valiant comeback after Nov ‘20

Shift in macro backdrop empowers Value
Chart 3: The Value composition primarily overweight inflation-sensitive, cyclical sectors

Chart 4: Rising inflation expectation fuels Value rally…

Chart 5: …so does improving growth (ISM manu. new orders as a proxy)
Higher bond yields and steepening curve supports rally
Chart 6: Value rotation is tracking 2s10s spread closely

Chart 7: Historical spread trajectory suggests current level is only halfway to peaking

Fundamental recovery - Accelerating EPS momentum and growth
Chart 8: EPS momentum swinging in Value’s favour – stronger revision since 4Q20
Chart 9: Value expected to generate comparable EPS growth (vs Growth) ‘21 and ‘22
Depressed valuation implies further re-rating
Chart 10: Ample room for Value to re-rate higher
The kicker – Value extending to Momentum
End of the mortification of Value?
Table 1: Value-oriented products that we favor
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Category |
Products |
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Global |
Global Equity |
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Regionals/ Markets |
US |
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China |
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Europe |
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Sectors |
Global Financials |
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*For ETFs, we recommend for investors to screen for using our ETF screener.
The Research Team is part of iFAST Financial Pte Ltd.
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