A Move Back to Value

Our 2020 Vision

    Facebook Twitter LinkedIn Email

By Mike Liss - First Quarter 2020

There’s a near-historic valuation gap between growth and value, which we think provides great opportunities for our clients. Especially if markets move back to a value mindset. Here’s where I think there are opportunities, and where I think investors are getting complacent.

2020 Recession Scenario off the Table

I’m not a macroeconomist. But I do believe there are areas of the market—particularly cyclicals—underperformed three to six months ago because investors were afraid those stocks were showing signs of a potential recession. We don’t think there will be a recession in 2020, so the cheaper cyclical stocks look like a great risk/reward opportunity for our clients.

That doesn’t mean the market is cheap, however. In fact, I think it’s quite expensive still. We see pockets of value in energy, banks, asset managers, industrials and pharmaceuticals, and we are pursuing those opportunities for our clients.

Social Media Presents a Challenge

Even though we don’t see a recession scenario this year, there are still things that worry us. When the president tweets, he affects markets. A tweet tomorrow on oil prices could send them tumbling. A tweet tomorrow on the U.S-China trade negotiations could wipe out the opportunities we’re seeing in cyclicals.

Is Inflation Heating Up?

Another thing that worries my team is how complacent investors may be getting about inflation. We don’t think inflation is going to take off tomorrow, but it has accelerated. The consumer price index (CPI)—excluding food and energy—has been over 2% the last six months. That’s not high inflation, but it’s increased at a faster clip relative to a year ago.

If investors think inflation is going to be low for the next ten years, they start to gravitate toward “bond proxies”—utilities, consumer staples, real estate investment trusts (REITs), etc. These stocks typically have higher yields than bonds, and lower volatility than some equities. As investors gravitate to these securities, they drive up their prices. Right now, we already think those bond proxies are expensive. So, investors may not be getting good risk/rewards for the price they are paying.

    Facebook Twitter LinkedIn Email
Mike Liss
Mike Liss
VP, Sr. Portfolio Manager
Global Value Equity

Our 2020 Vision

Get additional insights from our CIOs in the latest Investment Outlook.

Discover More
  • Related Articles
  • More From Author

Global Small Caps: Weathering Geopolitical Uncertainty

Will global small-cap stocks play catch up to large-cap stocks in 2020? Get the latest outlook from Portfolio Manager Trevor Gurwich.

Turning the Tide on Plastic Waste

Learn about how we believe thematic investing can help address global waste issues.

A Move Back to Value

Value Portfolio Manager Mike Liss sees pockets of opportunities in four areas—provided social media and inflation don’t disrupt markets.

    A Move Back to Value

    Value Portfolio Manager Mike Liss sees pockets of opportunities in four areas—provided social media and inflation don’t disrupt markets.

    A Rebound for Value Stocks

    It’s too early for value investors to declare victory, but last quarter’s value rebound has Sr. PM Mike Liss optimistic about these opportunities.

    Optimism in Value Investing in 2019?

    While the end of 2018 may have been rocky for financial markets, our value team is excited about their prospects in 2019.

      The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

      American Century Investments is not responsible for and does not endorse any comments, content, advertising, products, advice, opinions, recommendations or other materials on or available directly or via hyperlinks from Facebook, Twitter or any third-party website. Facebook, Twitter and LinkedIn are registered trademarks of their respective owners.