Chart of the week: did growth stocks lose their lustre?
For years, US technology stocks have beaten the rest of the market. And not by much. This trend was reinforced by the Covid crisis, which pushed the valuation of growth stocks to unprecedented heights - even higher than during the ‘dot.com’ bubble.
This sky-high valuation was sustainable as long as the earnings growth of these US growth stocks remained superior. But at least in the short term, this seems to be coming to an end. And that is not just because of the disappointing figures from Amazon.
Value renaissance finally on way
It takes a lot of guts to come up with the proposition that this is the moment to shift the emphasis from growth to value stocks. But John Bailer, US equity income manager at Newton Investment Management, is certain. The reason: structural changes in the macroeconomy. Soaring inflation, for example, is giving rise to a veritable “value renaissance”.
A value-growth barbell strategy
The 10-year and 30-year US yields are pushing towards the top of their trend channels. These interest rates are all-important for the further evolution of long-duration assets. 2 per cent on the 10-year segment seems to be a breaking point. A barbell strategy between value and growth may offer a solution.
Fund houses are still betting on value stocks
Where growth stocks won the “battle” of value stocks for many years, value stocks recovered well late last year. Although growth stocks have recently regained ground, several fund houses are still expecting a continuation of the rally by value stocks.
T. Rowe Price, for example, sent out a market outlook last week in which it wrote to stick with value stocks despite the recent gains by growth stocks. According to the fund house, the valuations of growth stocks are too high and value stocks have a chance to get some support.
Oddo BHF: we avoid hyper-growth stocks
“Focus on quality. Anticipate four structural trends that will dominate our lives in the years to come. Hyper-growth stocks are not recommended at this time because of the sharp rise in valuations. And be cautious about equity and bond markets.”
This is the message from Jan Viebig, Chief Investment Officer of Oddo BHF AG, who said that he is pleased that the four multi-asset funds in the Polaris range are now available on the Belgian market.