Mirage or Is it Finally Safe to Drink?

How often have you heard: “The time for value stocks is now!” only to be disappointed? Over the past 20 years, there has only been an 18-month window starting in the summer of 2015, and a two-year stretch following the 2020 pandemic lows, where value has consistently outperformed. Otherwise, being a fan of value investing has been similar to being a New York Jets fan waiting for the Super Bowl.

The periods when value stocks tend to outperform are typically when the economic cycle turns up, signaling a broad-based recovery. Even if we face an economic recession later this year, investor pessimism may have fallen so sharply that an optimistic scenario is actually possible. This positive shift could be driven by a stronger-than-expected recovery or easing inflation pressures. If that proves to be the case, strategically introducing a value tilt to your portfolios may be a prudent strategy. This scenario provides a perfect opportunity to optimize your holdings using Pave.

While you can directly select an S&P Value benchmark in Pave, we have previously highlighted the challenges with Standard & Poor’s current weightings. This benchmark overweights tech giants like Apple, Amazon, and Microsoft, potentially diluting the true value exposure. We believe a superior approach is to benchmark against the broader S&P 500 and then apply a value factor tilt.

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Unlike static benchmarks, one of the most powerful aspects of Pave’s software is its proprietary factor models. These models continuously analyze market flows and economic indicators. Unless they begin to detect capital flowing into stocks with true value characteristics, our optimization process will not populate those stocks into your client portfolios. This intelligent, data-driven approach allows you to avoid the common trap many value investors fall into: prematurely overweighting value stocks before market conditions truly support their sustained outperformance.

Pave's dynamic strategy provides a critical advantage in all market scenarios because it is adaptable and aware. If a recession does lie ahead, Pave will not buy value stocks until the markets sense an economic inflection point. When that time comes, it will layer in value stocks to capture the upside with precision and reduced risk.

In a market that never stands still, your strategies shouldn't either. Pave is the essential tool advisors need to not just adapt, but truly thrive.

To learn more about the power of Pave, please reach out by emailing sales@pavefinance.com or pressing the button below. We look forward to speaking with you.

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