It's time to push aside those high growth tech stocks you have been obsessed with these past five years and begin rotating into value names with an eye towards making large sums of money over the next decade.
That's basically the good word from investing pioneer Rob Arnott, founder and chairman of Research Affiliates (a sub-advisor of bond giant Pimco).
"The market is very fully priced...value stocks aren't," Arnott said on Yahoo Finance Live.
Arnott comes armed with his typically thorough research to back up his claims.
In May and June of this year, notes Arnott, the rebound in value stocks that started in September 2020 gave back over half its gains as Delta virus concerns ratcheted up. While flows into value stocks has improved a bit since, Arnott argues, valuations remain very compelling.
In a new research paper though, Arnott points out that value stocks not only trade in the cheapest decile in history they are in the bottom half of the cheapest decile. The [relative] discount for U.S. centric value stocks are wider than the discount observed during the height of the tech bubble.
Arnott thinks that discount for value stocks will shrink as we move beyond the pandemic globally and economic growth ramps back up.
"When most liquid asset classes are set to deliver a negative or near-zero real return, value stocks stand out as the only asset class likely to generate a 5%–10% real return over the coming decade. The opportunity to buy value stocks may be short-lived and we may wait decades for an opportunity of a similar scale," his latest research contends.
Meanwhile, Arnott believes tech stocks — long the market darlings — are primed to disappoint investors.
"Many more assets—including the most expensive tech stocks — are also priced to generate a negative real return, even if those companies are able to achieve the lofty growth the market currently expects," explains the research paper.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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