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NFJ Investment Group managing director and senior portfolio manager Burns McKinney joins Wealth with Brad Smith to outline the case for value stocks.
"First and foremost we're just talking about reversion to the mean," McKinney says, explaining, "You've got the value equities have lagged growth equities really since the global financial crisis. These cycles tend to be long, but this is the longest growth versus value cycle we've ever seen."
The portfolio manager adds that valuation discrepancies are now "as wide as we've ever seen. If you look at the US value index (^SGEPVBU) on a valuation multiple basis is trading at almost a 50% discount to the growth index. That's almost double the discount it usually trades at."
"Finally, if you think, well, what would a catalyst be? One possible catalyst would be that regardless of the [Federal Reserve] rate policy, it does appear that interest rates aren't going to be pegged to the floor to the same degree that they were after the global financial crisis. And so, to the extent that interest rates are just a little bit higher for longer, then that really bodes better for shorter-duration financial instruments," which McKinney says could benefit value stocks.
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McKinney tells Yahoo Finance that when looking for a well-positioned value stock, he prioritizes low valuation multiples, strong balance sheets, and companies that are paying and raising dividends.
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This post was written by Naomi Buchanan.