According to the MSCI World Value Index, value stocks surged 10.3 per cent in October, outpacing growth stocks by over 5 per cent.
S&P reported a similar trend across small-cap value stocks, with its index noting a 15 per cent spike over the same month.
Reflecting on the data, Russel Chesler, VanEck’s head of investments and capital markets, said that the trend suggests value stocks are “back with a bang”.
Mr Chesler referenced the performance of ASX-listed insurance companies over the course of 2022, noting 14 per cent growth for QBE and 18 per cent for IAG.
This trend, he added, is also reflected in globally listed value stocks, with Metlife up by over 21 per cent for the year and food processing company Archer Daniels up 42 per cent.
Mr Chesler also pointed to improvements across Australian gold-mining companies, claiming debt reduction and free cash flow generation has “fundamentally transformed” the stocks “on both an absolute and relative valuation perspective”.
This improvement, he added, has been supported by a “relatively high” gold price.
“Northern Star Resources was up over 11 per cent in October, while Perseus Mining has risen by a 20 per cent during October,” he observed.
According to Mr Chesler, value stocks are performing in accordance with trends amid previous periods of high inflation.
“Historically, value companies have outperformed when inflation and interest rates increase, as they tend to be less sensitive to changes in macro-economic conditions. Value outshined in the high inflation, rising rates environment of the late 70s and 80s,” he said.
“During times of inflation, companies with solid earnings can boost profit margins by raising prices and value companies, which tend to be more mature, have earnings and margins to improve.
“It is much more difficult for non-profitable companies to increase prices. So, in the current environment, investors are more attracted to established profitable companies.”
As such, growth stocks, particularly tech companies, have been “hit the hardest”, with higher interest rates reducing the value of future earnings, “weighing heavily” on profit expectations over the coming years.
Mr Chesler’s sentiment is shared by Garth Rossler, chief investment officer at Maple-Brown Abbott, who recently said he is expecting value stocks to continue outperforming amid current economic conditions.
“Value stocks have performed relatively well in this environment, and we believe there is room for further outperformance given valuations remain supportive relative to growth stocks,” Mr Rossler said.
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