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Against the grain: Go to Europe for value

Timely insights on the issues that matter most to investors.

The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Eaton Vance disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Eaton Vance are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Eaton Vance fund. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Past performance is no guarantee of future results.

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      By Edward J. Perkin, CFAChief Equity Investment Officer, Eaton Vance Management

      A contrarian take on the market

      Boston - U.S. travelers like to vacation in Europe when the dollar is strong and local prices offer good value for money. U.S. investors should follow this same logic by looking across the pond for good values to pick up in the stock market.

      One of the most popular discussion topics in the equity market is the significant outperformance of growth stocks over value stocks during the past decade. Valuation disparities between steady growth and cyclical value are at historically wide levels.

      For those of us who believe in value investing, the natural question is when value will come back into vogue. If and when value stocks do have a resurgence, the benefit is likely to be felt most strongly beyond our shores. Europe (and Japan, too, for that matter) offers cheaper prices and more upside from improving sentiment around trade tensions and global economic growth than the U.S. market.

      Europe's relative performance to US has closely tracked value vs growth stocks


      Bottom line: Our contrarian take on the market is that equity investors are not positioned for positive surprises. Improving sentiment on the economy could lead to a violent rotation into cyclical value sectors. In a rotation into value stocks, Europe has the potential to do well relative to the U.S.