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Is it time to rotate from ASX growth shares to value shares?

Some of the top performers amongst the S&P/ASX 200 (INDEXASX: XJO) index so far this year have been growth shares, led by the likes of Appen Ltd (ASX: APX) and Nanosonics Ltd. (ASX: NAN).

But despite the outperformance of a growth strategy so far this year, is it worth considering rotating into value stocks in the second half of 2019?

Growth versus value investing 

It’s been somewhat of a mixed bag on the ASX so far this year, with many of the big-name growth stocks from 2018 continuing their meteoric rise into 2019.

This includes the likes of Appen and Altium Limited (ASX: ALU), which have climbed 102% and 52% so far this year, respectively, while ASX star performer Afterpay Touch Group Ltd (ASX: APT) is up a further 69% to $20.27 per share.

On the value side of the equation, Rio Tinto Limited (ASX: RIO) has climbed 35% to $103.86 per share while other blue chips including Crown Resorts Ltd (ASX: CWN) and Qantas Airways Limited (ASX: QAN) remain in the red at the time of writing.

Will value stocks outperform in the second half of 2019?

Based on investing theory, a rotation from growth investing to value should outperform as economic conditions weaken and share markets undergo a correction of sorts.

While global and domestic equities remain broadly strong for the time being, there are headwinds building in global trade and geopolitical tensions, which may slow global growth and see equities markets temper in the second half of the year.

If this were to unfold, I’d expect to see value stocks outperform growth stocks, which traditionally have lower cash flows, lower dividends paid to investors and consequently more value built into future economic and share price growth.

While I’m still a big supporter of several top ASX growth shares, it’s worth keeping an eye on the markets for signs of a downturn and having a few top blue-chips up your sleeve just in case.

Some of my personal favourite stocks on the ASX include AGL Energy Limited (ASX: AGL), given the countercyclical nature of their earnings and the potential for more certain national energy policy, while Wesfarmers Ltd (ASX: WES) also could be good value, although I’d be wary of how they’re looking to use their significant dry powder in the M&A market.

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Lachlan Hall has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Altium and Nanosonics Limited. The Motley Fool Australia owns shares of and has recommended Crown Resorts Limited and Wesfarmers Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Nanosonics Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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