During the first quarter of 2016, we began purchasing shares of companies which we believe to be undervalued relative to their own historical valuation range as well as to the overall market. In March we published a blog on this topic, In Pursuit of Value, noting that we believed a shift in the portfolio towards value stocks would serve investors well, highlighting our rationale of support from both overall economic growth and the valuation disparity we saw between traditional “growth” versus “value” stocks.
When the economy is growing slowly, investors typically attribute a valuation premium to growth stocks and businesses considered fairly stable, such as consumer packaged goods and regulated utilities. In that environment, investors generally view growth and stability as scarce and bid up shares of those companies relative to companies with more cyclical or volatile earnings streams. However, when broad-based economic growth returns, growth stocks and stable businesses typically lose some of their valuation premium. At these times, investors no longer perceive growth as being scarce, and relatively cheaper value companies can seem more attractive than before.
This portfolio shift echoes a similar approach we took in 2009 to opportunistically add stocks we saw as value opportunities, based on our view that an improving economy would help these stocks outperform the market. It is once again our belief that more meaningful exposure to value stocks in the portfolio may benefit our clients, given what we judge as an economy which may be on the cusp of accelerating growth.
This information is intended solely to report on investment strategies and opportunities identified by Roosevelt. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. References to specific securities and their issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Please contact us at 646-452-6700 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions, or if you would like to request a copy of our Code of Ethics. Our current disclosure statement is set forth on our Form ADV Part II, available for your review upon request, and on our website, www.rooseveltinvestments.com.