After underperforming growth for years, value equities finally had their time in the sun in 2022. While both value and growth stocks declined last year, growth stocks fell much further than value thanks in large part to rising interest rates.
In this edition of the 401(k) Specialist Pod(k)ast, Invesco’s Kevin C. Holt, CFA, who is the CIO, U.S. Value Disciplines and Co-Lead Portfolio Manager of the Invesco Comstock Fund, helps advisors understand why they need to be looking at including value equities in a DC plan investment menu these days, and how value can help tackle the problem of far too many 401(k) participants being poorly diversified with their plan investments.
He also shares his expectations for value moving forward with respect to inflation; how the COVID downturn and the recent bump in the road with regional banks are affecting value equities, and provides a closer look at the energy, technology and healthcare sectors.
Not a Deposit Not FDIC Insured Not Guaranteed by the Bank May Lose Value Not Insured by any Federal Government Agency
The opinions expressed are those of the author as of April, 18, 2023. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.
Diversification does not guarantee a profit or eliminate the risk of loss.
This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
Stock and other equity securities values fluctuate in response to activities specific to the company as well as general market, economic and political conditions.
Businesses in the energy sector may be adversely affected by foreign, federal, or state regulations governing energy production, distribution and sale as well as supply-and-demand for energy resources.
Many products and services offered in technology-related industries are subject to rapid obsolescence, which may lower the value of the issuers.
The health care industry is subject to risks relating to government regulation, obsolescence caused by scientific advances and technological innovations.
The Fund is subject to certain other risks. Please see the current prospectus for more information regarding the risks associated with an investment in the Fund.
A value style of investing is subject to the risk that the valuations never improve or that the returns will trail other styles of investing or the overall stock markets.
Price-earnings (P/E) ratio, the most common measure of how expensive a stock is, is equal to a stock’s market capitalization divided by its after-tax earnings over a 12-month period.
Relative P/E is a measure that compares the current P/E ration to the past P/E ratios.
Annual returns, for the one-year period ending December 31, 2022, for the Russell 1000 Growth Index was -29.14% vs. -7.54% for the Russell 1000 Value Index. Source: Lipper, Inc.
The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000® Growth Index is an unmanaged index considered representative of large-cap growth stocks. The Russell 1000 Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
Historically, during moderate inflationary environments of 2.5% to 3.8%, value stocks have had 9.04% excess performance vs. growth stocks. Source: Kenneth R. French, Tuck School of Business at Dartmouth College, as of December 31, 2022. Performance reflects the trailing five-year monthly average annualized return of the top 20th percentile of the most expensive stocks (growth) versus the bottom 20th percentile of the least expensive stocks (value) within the largest 1000 US stocks. A value stock is defined as one having low Book Equity to Market Equity. In this case, we are looking at the relative performance of the 20% least expensive companies in relation to the 20% most expensive companies. Moderate inflation equal number of periods of 187 each. Inflation is defined as the US Consumer Price Index (CPI).
As of March 31, 2023, the Invesco Comstock Fund FAANG stock holdings included: 2.33% in Meta Platforms Inc. (FaceBook from FAANG), .67% in Alphabet Inc. (Google of FAANG), 0% in Amazon, 0% in Apple, and 0% in Netflix. Holdings are subject to change and are not buy/sell recommendations.
Past performance does not guarantee future results. An investment cannot be made into an index.
Before investing, investors should carefully read the prospectus and carefully consider the investment objectives, risks, charges and expenses. For this and more complete information about the fund(s), investors should ask their financial professionals for a prospectus or visit invesco.com/fundprospectus
Invesco Distributors, Inc.
NA2860657
Listen to All 401(k) Podcast Episodes
- How Company Mergers Affect Retirement Plans with Inspira Financial’s Pete Welsh
- Opportunity in the SMB Market with Sean Jordan, Principal Financial Group
- The Road to Better Retirement Outcomes with MFS’ Jeri Savage
- Highlighting Fixed Income Opportunities with Invesco’s Matt Brill
- Solving the Portability Puzzle with Allianz Life’s Ben Thomason
- Fiduciary Rule Update and ERISA at 50 with Lathrop GPM’s Allie Itami
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
