Since global equity markets bottomed on 23 March 2020 (MXWO 1609.57), we have seen the MSCI World Index rally an impressive 53.87% to recover all the ground lost during the Q1 selloff.1 This recovery is made especially impressive when you consider that we still lack a vaccine for COVID-19 and, as such, the real economy is still running at limited capacity. This was most evident in Q2 earnings which, as expected, were largely negative in terms of the economic activity amid the global shutdown.
Investors have been forced to reckon with the dislocation in economic activity and equity prices. Many will point to the unprecedent level of fiscal and monetary support as the primary driver for the market recovery. Others will simply reason that, as a leading indicator, equity markets are already looking to 2021 and pricing in progress toward a health solution and the associated resumption of business.
The unique driver of the equity market selloff in 2020, and associated response in terms of fiscal stimulus and monetary policy, hardly lends itself to historical comparison. However, we can find a common theme in stocks that ‘have worked’ in developed markets during the recovery. Numerous companies have showed idiosyncratic benefit in part from an acceleration of structural trends (e.g. Technology, Communication Services and Health Care). Traditional value sectors, which remain challenged by low interest rates and consumer activity, have displayed relative underperformance. This is somewhat surprising given the long-held analysis of the traditional business cycle, which would suggest that the recovery phase tends to be the most positive for value stocks.2
Where value investors have benefitted, is in using a selective approach to value investing through a Value Exposure Select Index. This approach has proven to have recovered stronger from the 23 March bottom in both US and global equities (see Figures 1 and 2) than the equivalent Enhanced Value Index approach.
Investors using value strategies to take advantage of cheap stocks need to protect their portfolios against stocks that are cheap for a reason. Value Exposure Select strategies can allow investors to access strong value factor exposure while seeking to avoid value traps by using a light quality touch.
SPDR has always offered a suite of Value Exposure Select strategies in both US and European exposures. We are now expanding the range to include a global version of this exposure through the SPDR® MSCI World Value UCITS ETF, which will track the MSCI World Value Exposure Select Index. The new World Value fund has its inception on 2 September 2020.
To learn more about these funds, please view the fund details table below. To view the full performance history for our USA Value fund, please click here.
Figure 1: World Value Exposure Select vs. Enhanced Value (Index Returns Since Market Bottom)
Figure 2 – USA Value Exposure Select vs. Enhanced Value (Index Returns Since Market Bottom)
Sources: Bloomberg Finance L.P., for the period 20-27 August 2020. Flows are as of date indicated and should not be relied upon as current thereafter.
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