Value Is the New Growth

March 28, 2022  |  Michael Reilly

I’ve said it before: You can’t score from the 50-yard line if you’re calling plays that work best from the 20-yard line.

You need the right playbook for the right spot on the field.

Investors are guilty of making the same mistake.

Far too many investors are still using the playbook designed to work in an economy of low interest rates and low inflation. It’s time to stop it – immediately.

Are we living in a world of low-interest rates and low inflation right now? No, of course not. So then, why would you continue to invest as though it is?

You can if you’d like, it is your money – do as you like with it.

But for the rest of us, it doesn’t need to be that hard. Choose the right playbook for the right market.

The types of stocks that are performing well right now are the ones that tend to outperform when rates are rising – like they are today.

And to no surprise, the stocks that are underperforming are the ones that historically underperform when rates are rising. 

If your portfolio is underperforming, it’s because you’re investing in the wrong stocks for this market. 

Take a look at what Treasuries rates are doing. 

Are they falling? Nope. Are they even moving sideways? Nope. 

They are climbing – at a historic pace.

So stop investing the same way you did when rates were falling!

It’s pretty simple. If you’re doing well this year, it’s because you’re investing in stocks that do well in a rising interest rate environment. Hint: Cyclical and Value stocks.

The areas showing the most relative outperformance are the areas showing the most absolute performance. 

The strength is in Energy, Oil, Industrial Metals, Precious Metals, and Commodities. 

The strength is not with what worked when rates were falling. Facebook could be the poster child for what I’m talking about. 

FB is down in excess of 34% this year while investment in XOP, the SPDR Oil & Gas ETF has netted savvy investors just shy of 41%.

To be clear, this is nothing new. This theme has been in place for over a year now. The only difference is that the outperformance is getting wider.

Maybe Value is the new Growth…

It’s a bull market in cyclical sectors – think Materials, Energy, Industrials, and almost anything Commodity.

We don’t see this trend ending anytime soon, and if that’s true, investors will want to keep piling into these cyclical names.

As we continue to see more and more of these cyclical stocks resolve higher, it only bolsters our view that this is indeed a new markup phase for the current bull cycle in commodities and commodity-related stocks.

The bottom line is we want to be buying commodity stocks and positioning ourselves for further outperformance from the cyclical trade. 

Until next week, invest wisely…

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