Mackenzie Minute: September 23, 2016
Jonathan Norwood, Portfolio Manager on the Mackenzie Cundill Team, discusses the recent performance of value and which sectors may see improved valuations in the near future.
Initially after Brexit, we saw a flight into quality, a flight back into bond proxies, and a flight into low volatility stocks. But, after the dust settled our style started to pull away. And, we really started to see financials and transports outperform the overall index. And, you know, to us this has always sort of a been a telltale sign of a sustainable rally in the market, a sustainable economic recovery and, in many respects, you know, to see the banks recover is a prerequisite for the next leg up in a bull market.
The elephant in the room is that value has really underperformed really for the last five years. We started to see that change, we expect to see that continue to change in Q4 and in 2017. And, I think some people will be surprised when they look back, even this year, to see who the leaders were in terms of performance. And, I think some people would be interested to know that a name like Caterpillar has actually outperformed Amazon and Facebook.
We truly believe that we're entering a period of, you know, multiyear outperformance for value versus growth and momentum. And, we believe that that reversion has begun. We’re overweight banks, they're one of the few sectors today that are trading at a discount to their book values. We're overweight, energy. We're starting to find a lot of value in industrials and a lot of value in healthcare. And, those are the sectors that we look forward to seeing improved evaluations over the next year or so.