Even Value Stocks Are Far Too Crowded Now, Bernstein Quants Say
(Bloomberg) -- It seems like every corner of the stock market is jam-packed these days.
Companies with the cheapest valuations and whose shares tend to like steeper yield curves, a group that includes banks and miners, are unlikely to fare much better in the next year relative to stable profit generators, according to Sanford C. Bernstein quantitative strategists. Though global economic growth is still sound, reflation will only happen slowly, they said in a note, cutting “crowded” value stocks to neutral.
Facing lofty prices around the world, investors are once again warming to undervalued stocks on the expectation that strong growth and a reduction in central-bank stimulus will help lift government-bond yields. While that same strategy turned popular at the end of last year, the MSCI World Value Index, which tracks some of the world’s cheapest shares, has trailed the broader market every quarter in 2017.
“It is hard to make a tactical case for value for the coming year,” Bernstein quantitative strategists including Alla Harmsworth and Inigo Fraser-Jenkins wrote on Tuesday. “We are also concerned about sentiment towards value having become too stretched.”
While buying cheap firms has all but flopped in 2017, the past month’s rotation out of technology shares and other momentum strategies has made market watchers reconsider turning up the love for value. This is especially true in Europe, where the strategy is a more crowded part of the market than expensive stocks, Bernstein says.
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