By David Randall

NEW YORK (Reuters) – Some investors are playing this year’s tug of war between so-called growth and value stocks by owning companies that straddle the line between the two categories, as uncertainties mount over the U.S. economy’s trajectory in the months ahead.

After years of poor performance, value stocks rose in the early 2021 when they were priced at relatively low multiples of their basic values.

Their performance against growth stocks has varied since then, with signs of a flagging U.S. economic rebound tending to benefit growth names, which are less tied to the economy’s fluctuations and led the market for most of 2020. Just behind the Russell 1000 Growth Index at midday Friday, which is up 18.6% year-to-date (up 16.2%), the Russell 1000 Value Index has seen a 16.2% increase. The benchmark is up around 18% this year.

The economic outlook is clouded by a COVID-19 revival and the looming end of Federal Reserve’s ease money policies. “You’re not seeing the great backdrop for deep value names or mega-growth names so we believe you can find great businesses in middle,” David Marcus, Evermore Global Value fund portfolio manager, said.

Marcus has begun to invest in companies such as Vivendi, a French media conglomerate (OTC:) SA whose growth prospects he feels will increase after the expected spinoff of Vivendi’s stake in Universal Music Group. Vivendi has a number of financially sensitive media brands and pays a 1.8% dividend.

Investors will be keeping a close eye on next week’s Federal Reserve meeting https://www.reuters.com/world/us/delta-darkens-us-q3-growth-views-fed-taper-announcement-expected-nov-2021-09-17, which concludes on Wednesday, for any details of the central bank’s plans to pull back its emergency-level support of the economy. Both the European Central Bank (ECB) and Bank of Japan will close their respective meetings that day.

Some fund managers have also become worried over the comparatively high valuations commanded by growth stocks, which have helped boost the S&P’s price-earnings ratio near its highest level since the 2001 dotcom bubble.

Matthew McLennan is co-heading the Global Value group at First Eagle Investment Management and holds shares of logistics firm CH Robinson Worldwide Inc.

A broad recovery that increases the number of global shipments could benefit the company’s business, he said. At the same time, McLennan is betting that the company’s increasing market share and comparatively low valuation of 16.8 times future earnings will make it attractive if global growth concerns spur a flight to quality stocks. “You don’t have to chase the ‘glamour stocks’ that are quite expensive,” he said.

Wall Street analysts are lowering their stock market expectations, so it is important to search for companies with both value and growth attributes.

Banks including BofA, Morgan Stanley (NYSE:), Citi and Credit Suisse (SIX:) cut back on their recommended exposure to stocks in the past week, while Goldman Sachs (NYSE:) cut its forecast of U.S. economic growth in the third quarter on Aug. 19 to 5.5% from 9% due to the impact of the Delta variant.

David Park, the portfolio manager for the Nuveen Santa Barbara Dividend Growth Fund, stated that it is unlikely that a large rally in value stocks, especially in industries such as movie theatres and cruise lines, like the one seen in the first three months, will repeat itself, even though the Delta variant may prove less disruptive than some fear. He also doubts growth stocks can regain their previous year’s euphoric rally due to their high valuations. Park instead is searching for discount retailers like TJX Companies Inc. (NYSE:) which, he stated, has taken market share away from mall-based clothing stores. He said that the company had reinstituted its stock buyback program and resumed paying its dividend after having reduced both its dividends in reaction to the pandemic. This gave it a value-tilt.

The company’s stock is up 3.2% this year.

“We are usually stuck in purgatory because we can’t invest in the highest-growth non-dividend payers and we aren’t interested in the lowest quality stocks either,” Park said. We are… looking for other opportunities such as this.”