Read the original report with graphics here.

• The reversal in value versus growth, which began in earnest in late fall 2020, generated attractive returns for many of our portfolios through May. In June, however, the turnaround reversed, with growth notably beating value. This was true worldwide, but particularly pronounced in the United States, as the Russell 1000 Value underperformed growth by 742 basis points. Such levies are unpleasant, but most importantly, from an investor’s sanity perspective, they can be annoying. The second riddle begins, questions arise as to whether Value’s run was short-lived and an uncomfortable feeling of “is this it?” Arises.
• Do not be afraid. These profitable transactions never happen in a straight line, as history shows.
• See the first chart above, which shows the historical 3-year reversal in value versus growth from 2000 to 2003. It was the best time in US history. It started for good reasons, similar to today – the valuation gap between value and growth had reached absurd levels in 1999, and the reversion to the mean was inevitable. A long Value / Short Growth portfolio would have generated returns of 86% (ps, it continued to be profitable for years).
• But it was not a straight line. There have been some uncomfortable and doubtful feedback along the way. In fact, when we look at the entire 40-year history of the value-versus-growth relationship (the second chart), ironically 4 of the 10 worst declines occurred during that best 3-year period. If investors had lost their temper in any of these draws, they would also have lost the trade of their lives.
• We are not letting a June comeback weaken our resolve, as it was very much in line with expectations. Our thesis remains intact. Value is always worth winning, by many. We have just started.

Warning: The views expressed are those of GMO’s asset allocation team up to the period ending July 2021 and are subject to change at any time based on market and other conditions. This is not an offer or a solicitation to buy or sell any security and should not be construed as such. References to specific securities and issuers are for illustration purposes only and are not intended to be, and should not be construed as, recommendations to buy or sell such securities.