Growth Stocks Are Eating the World. Live With It

It’s not hard to see why investors in Asia have been blindly chasing growth stocks. For the past 10 years, value has consistently underperformed. As the world goes through another round of stimulus, money will continue to flow to companies that promise the fastest expansion. This self-perpetuating trend is forcing a change in how some investors assess value.

There are many reasons why value stocks have lagged behind. Much of the phenomenon reflects the ultra-low interest rates that have prevailed since the global financial crisis. Lower rates make investing in growth stocks more attractive. At the same time, they hurt financial companies by compressing their net interest margins — the difference between the rates at which they can borrow and lend. This has depressed returns in a sector that’s come to make up a substantial chunk of the value universe, defined by stocks with low multiples of price to earnings, book value or other measures.