Announcer:
4 Your Money is brought to you by NelsonCorp Wealth Management.
Brandy Auterson:
It’s now time for 4 Your Money. We’re joined by David Nelson, CEO of NelsonCorp Wealth Management. Welcome back, David.
David Nelson:
Thank you very much. Appreciate it.
Brandy Auterson:
Well, let’s get right to it in late 2020 and into 2021, we saw value stocks outperforming the market for the first time in years. Now lately, that doesn’t seem to be the case. Talk to us a little bit about that.
David Nelson:
Yeah, it’s been kind of an unusual period that we’re in to say the very least with the shutdown and now this recovery and folks hoping for a quick resolution as far as to what’s taking place. The expectations of the economic recovery have certainly led to what you just brought up and that is value stocks outperforming growth stocks.
David Nelson:
To the average person out there, they’re all stocks, what’s the difference? Well, in periods of time like now, there’s a big, big difference. Value stocks are more kind of old school type stocks, companies that have been around for years. The expectation was that they’re going to do much better. The airlines, good example, hotels, things of that nature that really rocketed as far as the early part of the year.
David Nelson:
I brought along a chart. If you focus on the red, that would be the value stocks, the composite. The blue’s going to be growth stocks, and as we see on the left, this is just this year, on the left-hand side, the red really did much better up until fairly recently, last month or two. And so that would be the value stock trade, things were working, people were excited that we’re going to be moving forward. All of a sudden now we see the growth stock’s overpowering it because people are concerned that this new variance is going to be a real challenge.
Brandy Auterson:
For sure. What are some of the reasons that can cause these performance differences and why have value stocks had such a hard time?
David Nelson:
Interest rates would be the quick, simple answer. And when analysts try to establish a value for a stock, what they’re looking at primarily is cash flows and the cash flows can be impacted in a pretty significant way as far as when we talk about interest rates. They really can impact that value stocks more negatively than growth stocks.
Brandy Auterson:
Okay. Now, should this be something viewers think about when they are deciding how to allocate their investments?
David Nelson:
Yeah, I think so. Again, there’s no quick, simple answer as far as trying to decide as far as which one is going to be best. We talk about the weight of the evidence always as far as with clients, but when we look at value, value stocks as a whole are going to be, again, more old school. And values stocks, when the economy is really humming along and doing well, they’re going to typically do better. When we’re struggling to see growth in the economy, you want to look at growth stocks because they’re certainly going to be the place that you want to be in that type of environment.
Brandy Auterson:
All right. Well David, thanks for joining us. As always good advice. And if you missed any of our discussion, we’ll make it available for you on ourquadcities.com.