A client asked earlier this week – is the value trade overbought? Our answer was yes but circling back with data/charts to which potentially support the assertion. Whilst we can talk to individual sector level valuations, in this email we provide 30,000 feet view of why the value to growth trade may take a pause here.
Chart #1 – Value equity positioning. Investor positioning in value vs growth is at its highest level in recent history. (Mind you a similar argument for Emerging Market investor positioning could also be made at the moment).
Chart #2 – U.S. Treasuries appear to be oversold. In the chart below, the top chart is the U.S. 10-yr Treasury yield and the bottom chart is RSI (relative strength index). The current RSI of 75.2 is suggesting oversold territory. The last time it was at these levels was in 1994 – the massive bond market sell-off driven by the U.S. Fed. We may start to see support for yields at these levels (or potential reversal…even if it is short-term), which will also work against the value trade.
Investment Manager / Director at BanyanTree Investment Group
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