Value investing is again vexing investors, but there are some unique ways for advisors to position client portfolios for a value rebound.
Consider the U.S. Multi-Factor Model Portfolio, which is part of WisdomTree’s Modern Alpha series of model portfolios, is as a foundation for some, but not dedicated value exposure.
“This model portfolio is designed for investors with a long-term horizon looking for exposure to a broad universe of U.S. equities primarily using factor focused ETFs. The selected ETFs provide certain factor tilts that have the potential to generate excess return relative to comparable cap-weighted benchmarks over longer-term holding periods,” according to WisdomTree.
With the growth/value gap as wide as it’s ever been, there are incredible opportunities for investors to jump into equities while the default maneuver in today’s market landscape is heading into safe-haven assets like bonds or precious metals. Investors, however, could be missing out.
What It'll Take for Value to Rebound
“But if we are entering a period of money supply-induced inflation, the beneficiaries could be sectors such as Energy and Basic Materials, with Financials finding a bid if the yield curve steepens. In other words, value stocks,” writes WisdomTree asset allocation director Jeff Weniger.
Value fans believe this time may be different for value stocks, pointing to improving measures of investment sentiment, abating fears of a recession, rebounding corporate profits, and lessening trade tensions between the U.S. and China. Furthermore, value stocks are now trading at some of their most attractive prices in years as the growth/value gap is as wide as it’s been in decades.
“The first seven months of 2020 witnessed the Russell 1000 Growth Index defeat its value counterpart by a margin reminiscent of the tech bubble years,” notes Weniger. “The thing about the early 2000s is that the period marked the end of that bubble and the beginning of the Commodities Super-cycle, the window from around 2000 to 2008 that witnessed the prices of copper, oil, houses, cars—and just about everything else—start heading skyward.”
Breathing new life into value via the WisdomTree U.S. Multifactor Fund (USMF) could be the right way for advisors to approach value in this environment. USMF, which is a holding in several of WisdomTree’s Modern Alpha Model Portfolios, isn’t an ordinary value approach.
USMF tracks the WisdomTree U.S. Multifactor Index, which is generally comprised of 200 U.S. companies with the highest composite scores based on two fundamental factors (value and quality measures) and two technical factors (momentum and correlation).