Over the last fifteen years, the combination of very low interest rates, muted inflation, moderate GDP growth, and Tech dominance has favored Growth and stirred performance headwinds for Value.
Today, interest rates remain elevated as inflation concerns persist, while starting valuations are well above long-term averages, leaving less room for re-rating. Yet pockets of value remain, with a widening gap between Growth and Value stocks. Against a backdrop of higher-for-longer interest rates, persistent inflation, and stretched valuations, the conditions are increasingly favorable for active Value investors to shine.
In five of the last six years, the Growth-tilted S&P 500 Index has delivered mid-teen or better returns. During this time, there have been two drawdowns of 25% or more, neither of which has occurred in the last two years. Market drawdowns are regular events in bull markets. History suggests it is not a question of if but when the next one will occur. The best defense against downside volatility is a diversified portfolio that includes assets with lower correlation to one another. The less a portfolio loses in a given drawdown, the less ground it must recover when market conditions improve.
Boston Common’s US Value strategy has a long track record of success navigating market cycles. Over its almost 22-year history, the strategy has, on average, outperformed in down markets, helping to deliver alpha over a full market cycle.
Figure 3. Average Rolling 1-Year Return in Down Markets*
Source: Advent Portfolio Exchange
Beginning January 2003 through December 2024. Boston Common US Value Equity is the Tax-Exempt Value Equity Composite.
*A down market is defined as a year in which the trailing 1-year return is less than -5%. When defined as less than 0%, the average relative return is +4.0%.
Whether downside volatility emerges sooner or later, today’s economic landscape presents a unique opportunity for Value. US equities Portfolio Manager Kim Ryan details why economic conditions are historically favorable for Value investors ready to reap the rewards.
Past performance does not guarantee future results. All investments involve risk, including the risk of losing principal. The information in this document is not a recommendation to buy or sell any security. There is no assurance that securities discussed will remain in a strategy upon receiving this document. Securities discussed represent only a portion of a strategy’s holdings. It should not be assumed that securities transactions discussed were or will be profitable. Composite returns are presented in U.S. dollars, net of transaction costs, management fees and withholding taxes, with interest and dividends accrued. The Russell 1000 Value Index is a capitalization-weighted index of the largest publicly-traded U.S. companies that have a low price-to-book, price-to-earnings, and price-to-cash-flow valuations relative to a broader universe of companies. The index is unmanaged and does not incur management fees, transaction costs, or other expenses associated with separately managed accounts. The composition of our composite varies from the composition of the Index because of differences in sector and industry exposure, risk, volatility and holdings. Boston Common claims compliance with Global Investment Performance Standards (GIPS®). For a full listing of Boston Common’s composites and to request a GIPS® Compliant presentation, please call 617-720-5557.
This piece is intended as an editorial review of a survey of risk considerations and does not constitute investment advice, a solicitation, or an offer to buy or sell any security. Past performance does not guarantee future results. All investments involve risk, including the risk of loss of principal.
References to third-party research, publications, and data sources are provided for informational purposes only. Boston Common Asset Management does not warrant the accuracy or completeness of third-party information cited herein. Readers should consult original sources and qualified professional advisors before making any investment decision.
