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22 February 2021 | GSAM Connect

The Reasons for Value’s Return

Growth stocks’ strength in 2020 capped a decade of dominance. From 2010 through 2020, the MSCI World Growth Index outperformed the MSCI World Value Index by 170 percentage points (pp). In 2020 alone, the Growth Index beat its Value counterpart by 34pp. But in the last three months, the winds have started to change. From November through January, Value has crept back and led Growth by 270 basis points. We believe this trend may continue over the next few months.

We think the reasons for Value’s resurgence are three-fold: 1) Starting from a deep discount there is ample room for recovery, 2) vaccine distribution and economic reopening may disproportionately benefit Value sectors, and 3) a coordinated period of growth and reflation will support the style as well.

1. The current valuation spread is as high as it has been since the 2000s dot-com bubble, with a roughly 17-point difference in price-to-earnings ratios between the MSCI World Growth and Value indices. At two standard deviations above its historical mean, such periods have historically been associated with subsequent Value outperformance. And as Exhibit 1 illustrates, there is ample room for Value still to run. The underperformance of Value stocks has been very different to past recoveries. Where Growth-style equities recovered to pre-pandemic highs in July 2020, Value was just nearing that point in January 2021.


EXHIBIT 1: MSCI World Value Underperformed Around this Bear Market

Source: Bloomberg, Goldman Sachs Global Investment Research, and GSAM. As of January 31, 2021. Past performance does not guarantee future results, which may vary.


2. The recovery in Value stocks has been hampered by COVID-related activity restrictions, particularly in areas like entertainment, leisure, and travel. A vaccine, however, could provide a shot in the arm for these sectors. In fact, as Exhibit 2 shows, Value-style equities actually have the highest correlation to vaccine distribution probabilities. With Superforecasters at the Good Judgement Project estimating a 98% probability that 100 million people in the US will be vaccinated by June 2021 and 200 million by October 2021, we believe Value has a strong opportunity to recover over the course of the year.


EXHIBIT 2: Value-Style Equities Have Been Particularly Sensitive to Vaccine Expectations

Source: Goldman Sachs Global Investment Research and GSAM. As of January 31, 2021. Past performance does not guarantee future results, which may vary.


3. The tailwinds that we expect with a vaccine-shaped recovery will likely support Value as well. Global GDP growth forecasts of 6.5% in 2021 (and 4.6% in 2022), continued policy support, record easy financial conditions, steeper yield curves, and rising commodity prices may provide a set of conditions that is far more supportive to cyclical and Value companies than recent history. The higher-growth, higher-earnings, higher-inflation (even if transitory) environment we expect this year is consistent with past periods of Value rotation.

The duration of rotation is challenging to forecast. We still believe that in the long run secular trends will revert to supporting the Equity Growth Spurt. But in the meantime, we see a strong case for balancing both styles in a portfolio as Value potentially makes its return.



Growth-style equities are companies that are expected to grow faster than their peers and typically have correspondingly high valuations.

Value-style equites are companies that trade at discounts to their estimated intrinsic value, and typically have low valuations.

Correlation is a statistic that measures the degree to which two variables move in relation to each other.

The MSCI World Index is a free-float weighted equity index. It includes developed world markets, and does not include emerging markets.

The MSCI World Growth Index measures the performance of MSCI World companies with higher price-to-book ratios and higher forecasted growth values.

The MSCI World Value Index measures the performance of MSCI World companies with lower price-to-book ratios and lower forecasted growth values.

The NASDAQ-100 Index is a modified capitalization-weighted index of the 100 largest and most active non-financial domestic and international issues listed on the NASDAQ.

The S&P 500 Index is the Standard & Poor's 500 Composite Stock Prices Index of 500 stocks, an unmanaged index of common stock prices. The index figures do not reflect any deduction for fees, expenses or taxes.

The Russell 2000 Index is comprised of the smallest 2000 companies in the Russell 3000 Index, representing approximately 8% of the Russell 3000 total market capitalization.

The Russell 1000 Growth Index measures the performance of Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.

The Russell 1000 Value Index measures the performance of Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values.

Exhibit 2 Notes: “Vaccine distribution probability” refers to the probability of vaccine mass distribution by mid-2021 and "10pp" refers to 10 percentage points. The chart is based on historical correlations from September 4, 2019 to November 4, 2020. “Value” and “Growth” refer to the price returns of the Russell 1000 Value Index and Russell 1000 Growth Index, respectively. “Cyclicals” and “Defensives” refer to the total return baskets created by Goldman Sachs Global Investment Research. The S&P 500, Russell 2000, and NASDAQ 100 refer to the price returns of each respective index. Past performance does not guarantee future results, which may vary.

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About the Author

James Ashley

James Ashley

Head of Strategic Advisory Solutions Group for EMEA and Asia, GSAM

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