Broyhill Asset Management November 2020 Commentary: Value Returns

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Broyhill Asset Management November 2020 Commentary: Value Returns

Broyhill Asset Management commentary for the month ended November 2020, discussing the rally in value stocks in November.

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In their most recent quarterly letter, GMO’s Ben Inker speculates that future financial historians may declare that the release of vaccine trial data in November 2020 marked the start of the great Value stocks rally of the 2020s.

That would be consistent with our experience, as we outlined for investors on Broyhill’s quarterly call last month.  The first word of an effective vaccine sent the world’s cheapest stocks surging the most on record relative to their faster-growing peers, as investors rotated out of expensive COVID beneficiaries and into depressed value stocks poised to gain from a COVID recovery.

Given the magnitude of their underperformance and the scale of the discount at which Value stocks are trading, we think November’s initial surge was just a hint of what’s to come. 

Market Outlook

Election rhetoric drove markets for months

The election results and implications have been well covered so we won’t dwell here, except to say that the longer this uncertainty prevails, the greater the risk to investor sentiment. Aside from that, the biggest remaining question in our opinion is the senate and we’ll have to wait until January to see where things shake out there. For now, markets seem to be excited about the prospects for a divided government.

Value Stocks Rally

Vaccine headlines quickly overshadowed the election

Encouraging news on Pfizer’s vaccine overshadowed election results last week and sent markets soaring. While there are still many remaining questions, we think the market’s reaction was largely rational. The expected timeline was in line with consensus expectations, but the 90% efficacy was much better than most anticipated.

Value Stocks Rally

A VALUE-able reversal GLOBAL

Word of an effective vaccine sent the world’s cheapest stocks surging the most on record relative to their faster growing peers, as investors rotated out of expensive COVID beneficiaries and into depressed shares poised to gain from a COVID recovery. Global value stocks jumped almost 6% while their growth counterparts fell 2% over the two days.

RVS

If something can’t go on forever, it won’t

Last week’s move in value stocks was extreme on many metrics. But not nearly as extreme as the move in growth stocks over the last decade, which is perhaps the best run for growth (and the worst for value) in a century. Stepping back to look at the full picture, we see how much room value has to run. Don’t look now, but we may have just turned the corner.

RVS

We quantified the upside potential for value stocks on our recent call.  Click here or on the image below to access the presentation. And if you’d like to dial into future calls, you can send a request to Tim LeRoux at [email protected]

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Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver

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