- Value investors have been struggling for years while their growth-focused have ridden large tech companies to big gains.
- One prominent growth investor — $20 billion Lone Pine Capital — believes the problem is that stocks traditionally thought of as growth are actually value plays.
- “Some of the growth sectors actually look a lot like value,” said Mala Gaonkar, a managing director and portfolio manager at Lone Pine, on a panel at the ongoing Milken Institute conference.
- Visit Business Insider’s homepage for more stories.
Value isn’t dead, it’s just changed its name and appearance.
This is what Lone Pine Capital’s Mala Gaonkar argued in a Milken Institute-hosted panel Wednesday morning. The $20 billion hedge fund that Gaonkar helps manage is known as one of the premier growth investors in the world, and its biggest holdings include names like Amazon, Paypal, Shopify, Facebook, and Microsoft.
But those holdings shouldn’t be thought of as only growth bets, Gaonkar said, when asked by the moderator about value’s outlook. For instance, where Facebook is trading verses where “packaged goods companies” are trading doesn’t give Gaonkar much incentive to invest in the latter, even if they are considered more traditional value stocks.
“We look at value in the sense of what is the best risk-reward vs. growth, and from that perspective. The traditional hunting grounds of just saying ok let’s look at set P/E multiples and set cyclicals is a little dangerous,” she said.
“I would argue that some of the growth sectors actually look like very good value if you actually believe in the duration of growth that has been pulled forward by COVID-19, and the respective push that has been given to certain areas of tech.”
This an extension of an argument that Lone Pine, founded by billionaire Tiger Cub Stephen Mandel Jr., has made for some time. Last year, an investor letter from the firm stated that some value stocks were undervalued because their business models were outdated, naming industries like advertising, energy, and banking.
“The backward-looking nature of factor investing thus overstates the value of ‘value.’ Past is not prologue,” the letter reads.
Lone Pine did not immediately respond to requests for additional comment.
Value has been trounced once again this year by growth. BlackRock’s iShares S&P 500 Value ETF value is down more than 8% this year while the growth equivalent is up more than 26%.
This hasn’t stopped value investors from sticking to their belief that a turnaround is just around the corner; AQR’s Cliff Asness said earlier this year that this is a better buying opportunity for value investors than the tech bubble at the beginning of the millennium, and Eminence Capital’s Ricky Sandler, speaking on the same panel as Gaonkar Wednesday, said he expects a market rotation soon to help propel “traditional” value stocks.
There’s one prominent example supporting Gaonkar’s read on some big names traditional thought of as growth actually being value plays. Qraft Technologies, a South Korean asset manager, created an artificial intelligence-driven ETF focused on value investing earlier this year — and it immediately bought Amazon, Facebook, and Google parent Alphabet.
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