As an investment advisor, assessing the strength and resiliency of various asset classes like large-cap value is crucial. The dynamics of this asset class have shifted, driven by technological advancements, changing economic conditions, and new secular themes. Recognizing these changes and their implications can help you make informed decisions to optimize your clients' portfolios.
The New Drivers of Large-Cap Value Investing
Technological Advancements: Technological innovation is transforming traditional value sectors, creating growth opportunities. Industries such as healthcare, financial services, and industrials are leveraging technology to enhance their operations, increase efficiency, and drive innovation. Companies within these sectors are reinvesting their financial resources to gain market share and extend their competitive advantages. As an advisor, identifying value stocks with a strong technological component can position your clients to benefit from these advancements.
Economic and Market Dynamics: Current economic conditions favor value stocks over growth stocks. High inflation, rising interest rates, and market volatility create an environment where value stocks, known for their stability and strong cash flows, become more attractive. These stocks typically offer better protection during economic downturns, making them a compelling option for your clients seeking consistent returns amidst uncertainty.
Secular Themes: Global trends such as electrification, decarbonization, and artificial intelligence are reshaping the investment landscape. These themes provide new opportunities within the value sector. For instance, companies involved in renewable energy, sustainable manufacturing, and AI-driven solutions are experiencing significant growth. By focusing on these secular themes, investment managers can identify value stocks that are not only undervalued but also positioned for substantial future growth.
The Blurring Lines Between Value and Growth
Technological integration and market dynamics are merging the characteristics of value and growth stocks. Many value stocks now exhibit growth characteristics, offering the potential for higher returns without the current premium valuation of many growth stocks. For example, a healthcare company investing in AI to enhance patient care or a manufacturing firm adopting sustainable practices can deliver growth-like returns while being classified as value stocks. This convergence allows for a more diversified and balanced portfolio, combining the best of both investment strategies.
An Evolving Perspective on Large Cap Value Investing
At Great Lakes Advisors, our relative value investment strategy combines valuation with improving fundamentals to identify undervalued stocks poised for growth. We focus on companies that generate strong cash flows, have robust earnings potential, and are positioned to outperform market expectations. This relative value approach ensures that we invest in stocks that offer both value and growth potential, providing a balanced investment opportunity.
Our investment process emphasizes diversification, industry expertise, and a disciplined decision-making approach. By diversifying across industries and sectors, we minimize risks and capitalize on various growth opportunities. Our team-based approach leverages the collective expertise of our analysts and portfolio managers, ensuring well-rounded investment decisions. We balance fundamental analysis with objective metrics to identify stocks with strong growth catalysts.
Today our insights into large-cap investing reflect the importance of a modern and practical approach. Our portfolio managers believe the large-cap value space offers broad exposure to cyclical, defensive, dividend-income, and secular-growth areas. They emphasize that many traditional value sectors, such as healthcare and financial services, are undergoing rapid changes driven by technological innovation.
Our investment philosophy focuses on consistency and risk management, avoiding big bets and maintaining diversified portfolios. By minimizing factor and sector bets, our managers aim to deliver consistent returns across various market conditions. The team's approach also emphasizes the importance of style purity, ensuring that our large-cap value portfolio aligns closely with the Russell 1000 Value benchmark, but with a focus on stocks that are attractively valued and have dynamic growth catalysts.
Conclusion
Several new drivers of large-cap value investing are reshaping the ways many advisors allocate their clients’ portfolios. By recognizing these changes, you can better position your clients to capitalize on these evolving trends. For detailed insights and strategies on leveraging these market changes, download our eBook, "The Evolution of Large-Cap Value Investing: A Contemporary Approach."
