Investment Comment
15th December 2023
Timeless style isn’t universal
As the last of the Investment Comments scheduled before Christmas and the New Year, may I wish you and your families a joyful and peaceful season.
As Coco Chanel (she of expensive perfume for those partners still scrabbling around for Christmas gifts… a non-investment hint), once said “Fashion comes and goes but style lasts forever”. Similarly, in the equity investing world investors often get labelled as having a certain style. Those looking for the next big thing e.g., technology, science, thematics, are often labelled as growth investors. Value investors are those that seek to invest with a focus on valuation facts and a preference for cashflows in the here and now, rather than future ‘growth’.
Looking at the US, the growth style performed well in the period up to the top of the 2000-Dot Com bubble but then fell 55% between March 2000 and September 2002. Value ‘only’ lost 38% in the same period. Between March 2000 and March 2007, value outperformed growth by 54%. But between March 2007 and November 2021, growth outperformed value by 162%. Although there was a growth sell off in 2022 (which resulted in value outperforming by 25%), the subsequent growth-led rally in 2023 has seen growth outperform value by 38%.
Whilst the swings in performance have been dramatic, and appear irrational, the relative pattern of returns of growth and value mirrors their relative earnings (Earnings per-share - EPS) since 2005, a period in which the earnings’ expectations have been consistently recorded for US styles. Before 2005, we would suggest that the swings in performance were valuation driven (linked to sentiment) rather than underlying earnings.
US equity style returns of growth versus value (1996-2023)
Source: Artorius, Bloomberg
US equity style of growth versus value: total return and earnings (2005-23)
Source: Artorius, Bloomberg
This relative return of different styles has been similar in Europe, at least until 2022-23. Growth, by and large, has consistently outperformed and has followed the relative strength of earnings (EPS). The stronger delivery of earnings by growth stocks has justified the outperformance of that style (relative to value). However, since the peak in growth stocks in late 2021, both earnings and returns for the growth style have lagged quite markedly. In many ways this has fitted the traditional narrative that value tends to perform well in periods of inflation. If inflation falls back further there may be macroeconomic drivers in favouring growth style - will European investors see a better period for the growth style? We suggest that the outcome will be driven by earnings fundamentals rather than investor fashion.
Europe equity style of growth versus value: total return and earnings
Source: Artorius, Bloomberg
Blue Dot
Pale Blue Dot is a photo of Earth that was taken by the NASA Voyager 1 space probe in 1990. As the spacecraft was departing our planetary neighbourhood for the fringes of the solar system, it turned around for one last look at its home planet. Voyager 1 was about 6.4 billion kilometres (4 billion miles) away, and approximately 32 degrees above the ecliptic plane when it captured this portrait of our world. Caught in the centre of scattered light rays (a result of taking the picture so close to the Sun), Earth appears as a tiny point of light, a crescent only 0.12 pixel in size.
"Look again at that dot. That's here. That's home. That's us. On it, everyone you love, everyone you know, everyone you ever heard of, every human being who ever was, lived out their lives. The aggregate of our joy and suffering, thousands of confident religions, ideologies, and economic doctrines, every hunter and forager, every hero and coward, every creator and destroyer of civilization, every king and peasant, every young couple in love, every mother and father, hopeful child, inventor, and explorer, every teacher of morals, every corrupt politician, every 'superstar,' every 'supreme leader', every saint and sinner in the history of our species lived there — on a mote of dust suspended in a sunbeam.
Our posturing, our imagined self-importance, the delusion that we have some privileged position in the Universe, are challenged by this point of pale light. Our planet is a lonely speck in the great enveloping cosmic dark. In our obscurity, in all this vastness, there is no hint that help will come from elsewhere to save us from ourselves.
The Earth is the only world known so far to harbour life. There is nowhere else, at least in the near future, to which our species could migrate. Visit, yes. Settle, not yet. Like it or not, for the moment the Earth is where we make our stand.
It has been said that astronomy is a humbling and character-building experience. There is perhaps no better demonstration of the folly of human conceits than this distant image of our tiny world. To me, it underscores our responsibility to deal more kindly with one another, and to preserve and cherish the pale blue dot, the only home we've ever known.”
— Carl Sagan, Pale Blue Dot, 1994
Pale Blue Dot of Earth - "That's here. That's home. That’s us”
Source: Artorius, NASA/Voyager/JPL
Word of the year: Getting ready for Christmas Scrabble
Lastly, the Oxford University Press announced its 2023 word of the year on Monday, that word being “rizz”. Derived from the word charisma, rizz refers to a person’s ability to attract a romantic partner through “style, charm or attractiveness”. For Scrabble fans, the word of the year is worth 22 points (without using any multipliers), and imagine your children’s and maybe grandchildren’s reaction at your modern parlance.
Gerard Lane Chief Investment Officer
* Any feedback provided is anonymous
All expressions of opinion reflect the judgment of Artorius at 15th December 2023 and are subject to change, without notice. Information has been obtained from sources considered reliable, but we do not guarantee that the foregoing report is accurate or complete; we do not accept any liability for any errors or omissions, nor for any actions taken based on its content. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested. Past performance is not a reliable indicator of future results. Nothing in this document is intended to be, or should be construed as, regulated advice. Artorius provides this document in good faith and for information purposes only. Reliance should not be placed on the information contained within this document when taking individual investments or strategic decisions. Artorius Wealth Management Limited is authorised and regulated by the Financial Conduct Authority. Artorius is a trading name of Artorius Wealth Management Limited.
FP20231215001