We Are All Value Investors Now

After more than a decade of chasing growth, the market is favoring bargain-priced stocks

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When inflation heats up, everyone looks for good deals when they go shopping. The same is proving to be true in the stock market this year—and in dramatic fashion.

It’s a reversal in a rivalry that’s as fierce as that of the Yankees and the Red Sox: growth vs. value. In other words, is it best to buy companies with dazzling, if sometimes dubious, prospects for sales and profit growth or to focus on stocks that look cheap based on the value of the company’s assets, even if earnings growth is relatively modest?

After languishing behind growth for most of the past decade-plus, value investing has come back with a vengeance. Take the S&P 500 Pure Value Index, which tracks companies with low valuations based on the ratios of their share price to their book value, earnings, and revenue. Since the middle of November, the index has returned close to 8% with dividends. Over the same period, its sister index, the S&P 500 Pure Growth, has lost investors 25%.

For the 12 years before that, the growth index’s return of 650% was almost double that of the value index’s. The sudden switch in fortunes has been a bonanza for funds focused on cheap stocks. Among exchange-traded funds alone, value strategies have seen inflows of $55 billion so far in 2022, compared with a net outflow of $1 billion for growth, according to Bloomberg Intelligence. So is it time for value money managers to gloat?