There's a"hidden gem" in the stock market that could outperform peers by 30% this year, according to GMO's asset allocation team.
The firm wrote in a Tuesday note that so-called deep value stocks are currently"woefully underrepresented" by asset managers and are currently trading at a steep discount from a historical standpoint as well as compared to the broader market.Deep value typically refers to an investment strategy that involves picking stocks that are the most undervalued compared to the broader market.
"Based on our estimates, if all quintiles of the U.S. market revert to their historic median valuation , we believe that US Deep Value is priced to outperform the rest of the market by roughly 30%," the note said. Meanwhile, GMO noted that asset managers were quick to drop their deep value holdings, and"hung on to those that leaned a bit less into Value to survive."
This presents an opportunity for portfolios heading into 2023, the note says, as"no exposure means no line item, which means most committee members and staff may not be thinking about Deep Value."