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A short-term value bounce ignites a long-term debate

Global Equities

BNP Paribas Asset Management

We all recognize that 2020 has so far been anything but an ordinary year. After the collapse in global equity prices at the start of the year, the initial rebound has also been uncharacteristic. The rebound from the lows in late March was led by the growth leaders of the past decade and not as is usual by the value cohort, primarily made up of Financial, Energy and Capital Goods companies. Recently though we have seen these companies outperforming and after such a long period of strong returns by “growth” companies – one has to ask oneself – what is next?

Before we share our view on this debate a couple of clarifications are in order. The true value of any company and its shares is obviously related to the earnings growth rate that the company can generate, or as Warren Buffet is quoted as saying “growth and value is joined by the hip”. Value stocks are often simplistically described as stocks with a low valuation multiple such as a low Price-to-Book or P/E multiple and growth stocks as stocks with above average growth, which typically trade at high valuation multiples. At C Worldwide Asset Management we invest in companies where we deem the company can sustainably compound its earnings above GDP-growth over many years and that the majority of the company’s value is due to future growth and not past growth. We do not necessarily seek the highest growth companies and we do not shy away from investing in what are traditionally seen as value sectors, such as Financials and Capital Goods. When we invest in these sectors, we invest in the growing part of those sectors. Despite this, we are often put in the growthstyle category, even though our view of growth vs value is more granular than the two simply defined categories that are often discussed.

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