Arnott: Market Shift Coming in 2020

Research Affiliates chairman Rob Arnott sees a major market shift on the horizon that could present a “spectacular “opportunity for value investors. This according to an article in CNBC.

In an interview with Trading Nation, Arnott said, “We’ve seen more and more people give up on the idea of value investing, which we think is a little strange because we’re in the only major industry in the global macro economy where people hate bargains,” adding, “Value has been battered down now for 12 years, most particularly from 2015 to 2019, so the last five years have been daunting. Value is cheap.”

Arnott describes value’s underperformance for more than a decade as “breathtaking” and says it has been driven by several false narratives, namely that “Growth is ‘growthier’ than it used to be,” and that gross margins have improved. Instead, he asserts, the trend is due to value having gotten much cheaper over the years—”It’s gone from trading at about one-third the valuation multiples of growth stocks to roughly one-eighth the valuation multiple.”

He concludes by arguing that a rotation to value could be critical if the economic tide changes: “If there’s an economic slowdown — Warren Buffett famously said when the tide goes out you see who’s standing naked, and growth stocks are built on a presumption of growth.”