Value investing may be back, but TIFF Investment Management, a firm that provides outsourced chief investment officer services, is already reconsidering growth investments.
“We’re now looking at deeply-out-of-favor areas of growth,” said Trevor Graham, head of equities.
Large dislocations in the biotech and software sectors have the firm thinking through the potential for a bounce back. Graham said that while the firm “might be too early,” his team is looking at parts of the enterprise software market that are down 60 to 65 percent.
“Being down this much in this short period of time — that gets our attention,” Graham said. “The way that markets typically function is that when there’s a big swing of the pendulum, things tend to overcorrect.”
TIFF’s team sees this period as an opportunity to add small positions in biotech, payments, or software companies. The firm invests with a number of active specialist managers with highly concentrated positions — some with exposure to as few as five stocks.
According to Graham, the last decade has been “benign and atypical” in the markets. With no recession, no major global conflicts, and a long, slow consistent expansion, stocks have flourished. Now there is a lot more volatility, which has been set off by rising interest rates and inflation. At the same time, unemployment is still quite low.
“This whole episode is probably warranted,” Graham said. “For several years, the markets did much better than the broader economy. They probably got ahead of where they should have been.”
Thanks to that, value stocks have outperformed their growth peers after years of losses. As of April 29, the MSCI ACWI Growth Index was down 19.76 percent. Meanwhile, the MSCI ACWI Value Index dropped just 5.75 percent.
Value managers have posted positive returns during the same time frame. A number of asset managers, including AQR, have been posting stellar returns, in part because of the rebound of value, Institutional Investor previously reported.
While TIFF’s equities team isn’t shunning value investing, they are thinking about adding growth stocks amid a market rout.
“As an asset allocation matter, one of the ways that I think people can add a lot of value over time is modestly overweighting equities at the bottom of the cycle,” Graham said. “I'm not suggesting that we’re there yet... At some point, that growth is worth paying for again.”
