Financial Times perspective: Switch to value stocks to prepare for inflation

The argument for rotating from Growth into Value stocks has been forwarded many times in the past decade. Anyone who followed it, however, would have made a mistake. But the time to switch may have finally arrived. As the FT's excellent personal finance columnist Merryn Somerset Webb explains in the article below, there are now compelling reasons to disembark the Growth train. The graphic illustrating her piece (from our partners PrimeCharts) illustrates the point. It compares the long-term outperformance of Vanguard's Growth ETF over the firm's Value ETF. This gap has widened dramatically in the last two years. By Vanguard's calculations, $10,000 invested in its Growth ETF a decade ago is today worth $58,500. The same investment into the Vanguard Growth ETF has grown to a more modest $37,280. In Rand terms that initial R82,000 investment in 2011 has ballooned to R875,000 in the Growth ETF compared with R558,000 in Value – an outperformance of 57%. Ms Webb argues the massive debt incurred by governments in response to the Covid-19 pandemic will soon need to be addressed. The consequence will result in the deadly combination of higher taxes and, worse, the old chestnut of inflating away the State debt mountain. Neither measures benefit Growth companies. From their perspective, it gets worse. – Alec Hogg

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