Large-cap growth stocks continued to outperform in 2021, leading the average global stock to underperform the MSCI World Index by 6.9%, the worst figure since 1999 and the fourth year in a row of underperformance. This narrow leadership has hindered active global equity managers, but as we enter 2022, the environment is looking increasingly supportive – particularly for bottom-up, fundamental investors.
First, significant valuation dispersion among global stocks has emerged, which could bode well for active investors. Standard deviation in 2020 and 2021 was at the highest level since 2000.
In addition, the dispersion between regional valuations is at multi-decade highs, providing a compelling hunting ground for global investors.
Finally, there is decade-high dispersion between sell-side analysts’ high and low earnings estimates for global stocks. These gaps present additional opportunities for bottom-up investors with unique perspectives, deep networks, and differentiated views.
The dispersion of valuations and earnings estimates for stocks have widened markedly over the last couple of years and now provide one of the most compelling environments for fundamental global equity investors in decades. It has been over 20 years since these same puzzle pieces have come together in this way, and we look forward to the opportunities ahead in 2022 and beyond.
