Sharing an interesting excerpt from GMO's, of Jeremy Grantham fame, December Quarterly 2021.It has some insights that may be relevant in thinking about MFG and recent poor performance, and the impending correction of particularly overvalued US stocks.
"The tendency to ride winners and cut losers is also tempting within your active manager roster. It is completely natural to feel more confident in your managers who have just had a great few years and entertain doubts about those who lagged. In round numbers, no one ever fires a manager after strong performance, whereas lagging managers rightly live in fear of the axe. I discussed the impact of this on investor portfolios a few years ago,3 here illustrated in Exhibit 2, which shows the performance of managers who were fired by institutional investors in the three years prior and subsequent to being fired.
Teasing out the difference between skill, luck, and style for active managers is far more of an art than a science, but the instinct to ditch the managers who have recently disappointed has often proved painful.And the most obvious driver of style-driven differences for managers in recent years has been the question as to whether they lean more toward value or growth. I don’t wantto spend too much time on this one given that every second piece I have written in thelast couple of years has been about how attractively positioned value is, but it does bear repeating that value is still very cheap relative to growth. Exhibit 3 shows the valuation of value versus growth in the U.S. as of the end of 2021; value is in the fifth percentile relative to history. If it were to go to its historic average valuation versus growth, that would entail outperforming growth by approximately 68%."
For full document and greater context: https://www.gmo.com/globalassets/articles/quarterly-letter/2021/gmo-quarterly-letter_4q-2021.pdf
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