For 2020 be the year for value investments? Before we completely answer that question, let's review the difference between value and growth investments. Value or any companies take a portion of the earnings and pass it along to their investors in the form of a steady stream of income typically called a dividend. On the other hand, growth-oriented companies take their earnings and reinvest the proceeds back into the business instead of paying a portion out to their investors. Cording to data from MorningStar, over the last decade, dividend stocks of Trail the S&P 500 as growth stocks with rapid profit increases have enjoyed most of the fame.
Will 2020 be the year to break that trend?
Stocks maybe at record highs, but 2020 has already proven to be a volatile year with Middle Eastern rest, China trade talks, the coronavirus, and not to mention the presidential election. Value oriented investments can bold well for investors if the above volatile issues kick up during the year. According to the CFRA (Center for financial research and analysis), “David and strategies are becoming top of mine for investors that want to participate in the market that continues but they want to be prepared for the volatility that feels like it’s around the corner.”
Even Wall Street analyst are weighing in with much more modest return forecast for the market. They are predicting only a 2% growth rate this year for the S&P 500 index. In comparison, most of the popular David and producing fans have a dividend yield of about 3%. Adding to the appeal is hell low interest rates are again, which makes bonds less attractive to investors as well. The Federal Reserve slashed borrowing cost three times in 2019, pushing the tenure treasury yield below 2%. Low for a longer interest rates are reality and no longer a forecast. If returns or more muted this year, the income component and lower volatility of value or in investments will play a more meaningful role for total returns.
Investors seem to be catching on. According to CFR a comma in the fourth quarter alone, dividend fans experienced more than 10 billion in new money, which is more than any other strategy. What is interesting is that the inflows came even has the stock market rallied into the year-end; a sign that investors were getting nervous. This does not mean that investor should run out and sell all of their growth and bun investments in favor of value. It's just that after a decade of lagging returns compared to the S&P 500, that you might finally get a chance to shine. As always, only time will tell.