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The post-financial crisis period has seen price momentum strategies – buying top performing stocks with the expectation that they will continue to lead the market – gain popularity among fund managers thanks to consistent success. Recently, however, value investors have finally started to outperform, and it’s a trend BofA Securities cross-asset and quantitative strategist Alex Makedon expects to continue.

Mr. Makedon notes that the experience of the average 45-year-old portfolio manager has been decidedly not value-friendly. Cheap stocks were value traps during the financial crisis – their prices were flat to lower - and for the decade afterwards value stocks were also performance-destroying.

Price momentum strategies generally outdistanced the benchmark S&P 500 from 2009 to 2020. But, value stocks (as chosen by lowest EV/EBITDA - enterprise value to earnings before interest, taxation, depreciation and amortization) have generated a 30 percentage point return since December 2020 versus flat returns from price momentum.

The strategist shows that the average price to book value for the Russell 1000 Growth Index is 3.5-4.0 times higher than for Russell 1000 Value stocks. This is similar to year 2000 levels, just before the tech bubble burst. Value stocks are much cheaper than historical averages based on forward price to earnings ratios.

Importantly, value stocks are very much under-owned in active funds. This implies that value stock outperformance will eventually cause fund managers to quickly add value stocks, boosting returns for those already implementing related strategies.

Over the past decade, equity markets have been driven by factors like monetary policy, fiscal policy, COVID lockdowns and new technology that have little to do with valuation. If this period is over, and company-specific values are retaking centre stage for successful stock picking, it will be a good idea for investors to start screening for new ideas using tools like EV/EBITDA.

-- Scott Barlow, Globe and Mail market strategist

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The Rundown

Persistent inflation has investors betting on rate hikes

Financial markets have upped their bets on additional rate hikes from the Bank of Canada and U.S. Federal Reserve following blowout employment reports in both countries and higher-than-expected inflation data from the United States. This amounts to a U-turn for bond traders and investors, who spent much of January and early February doubting the resolve of central bankers in both countries to keep interest rates at highly restrictive levels through 2023. Mark Rendell reports.

Also see:

Bond euphoria grinds to a halt as inflation lingers

U.S. stock rally faces uphill climb after mixed inflation data

A rally that has lifted stocks in the early weeks of 2023 may struggle to find its next leg higher as investors face more expensive valuations, a weak earnings outlook and an uncertain economic backdrop. Tuesday’s closely watched inflation report on U.S. consumer prices showed the smallest annual price increase since late 2021. But the data did little to dispel expectations that the Federal Reserve will have to continue raising rates higher and keep them elevated for longer to drive inflation lower. Meanwhile, companies in recent weeks have reported tepid fourth-quarter earnings and analysts’ profit outlooks have grown more pessimistic, while stock valuations are at their highest level in about six months. Lewis Krauskopf of Reuters reports.

Also see:

Markets ride US$1-trillion global liquidity wave

Retail investor risk appetite improves with AI stocks leading

Want higher yields in bonds but not higher risk? Here’s where to look

Individual investors in Canada tend to focus on Government of Canada bonds when thinking of fixed-income securities for their personal portfolios. That’s a missed opportunity, says veteran fixed income fund manager Tom Czitron, because provincial government bonds offer higher yields and little extra risk.

China retail investors from Gen-Z to retirees sit out stock rally

China’s retail investors have a case of deep pockets and heavy hands as they are skipping out on the sharp rally in stocks since COVID protocols were lifted, despite being flush with savings accumulated during the pandemic years. The dismantling of three years of China’s stringent zero-COVID policy has revived bets on a swift economic recovery and driven the stock market up 13% in three months. But as Reuters reports, retail investors are haunted by the regulatory purges, volatility and losses since 2021.

Also see:

‘Big Short’ manager Burry, Farallon among hedge funds making bets on China

China’s rising economy won’t float all commodities equally

‘Opportunity Fund’ a rare Brookfield disaster

Brookfield Corp. launched its Select Opportunities Income Fund in 2014 with three objectives: provide holders of its units with quarterly cash distributions; maximize total return; and preserve capital. It failed to achieve the latter two goals. It’s now likely abandoning the first, with an announcement in early January that, because of the fund’s dwindling size, it may suspend payouts. David Milstead reports on the disaster this Brookfield closed-end fund has become.

Others (for subscribers)

Analysts’ forecast returns and recommendations for all stocks in the S&P/TSX Composite Index

Gordon Pape: My RRSP Portfolio didn’t escape the 2022 market turbulence but continues to surpass my target

National Bank reveals its 2023 ‘Dividend All-Stars’

Number Cruncher: 10 U.S. stocks distributing twice as much dividends as the S&P 500

Warren Buffett’s Berkshire dumps shares in TSMC, banks; increases Apple stake

BlackRock cuts Japanese stocks to ‘underweight’ on hawkish BOJ risks

Wednesday’s analyst upgrades and downgrades

Tuesday’s analyst upgrades and downgrades

Globe Advisor

Insider traders use ETFs to front-run M&A deals, academics say

What Ontario’s self-certified investor pilot program means for advisors and investors

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Ask Globe Investor

Question: I currently hold a family registered education savings plan account at a discount broker for my two daughters. My oldest daughter is in her second year of university and the youngest is starting university in the fall. I know there is a $5,000 withdrawal limit for the first 13 weeks of school. Does that limit apply to my second daughter as well or only once per RESP account?

Answer: Each beneficiary is subject to a $5,000 withdrawal limit for the first 13 weeks after initial enrolment in full-time studies. Note that the limit applies only to educational assistance payments (EAPs), which consist of government grants and investment earnings. EAPs are taxable in the hands of the beneficiary. Withdrawals of your contributions are tax-free and not subject to any dollar limits.

After the initial 13 weeks of enrolment, there are no hard limits on EAP withdrawals, although you could be asked to provide receipts for education-related expenses if the withdrawal exceeds the government’s annual EAP threshold, which is $26,860 for 2023.

The $5,000 EAP limit applies only in the first year of studies, unless the beneficiary takes a break from full-time enrolment for more than 13 consecutive weeks, in which case the EAP limit will apply again.

One other thing to watch: With family plans, Canada Education Savings Grants can be shared among beneficiaries. However, be careful not to exceed the $7,200 lifetime CESG limit per beneficiary or you will have to repay the excess. Your financial institution should be able to tweak the formula it uses for EAP withdrawals to make sure the $7,200 limit is respected for each beneficiary.

--John Heinzl (E-mail your questions to

What’s up in the days ahead

Energy stocks of late have been producing disappointing returns. Billionaire investor Ken Fisher will explain why that’s a trend likely to continue.

Click here to see the Globe Investor earnings and economic news calendar.

More Globe Investor coverage

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Compiled by Globe Investor Staff