Increasing noise around the rotation from growth to value stocks on upbeat vaccine news is misguided and may well catch-out investors.
A number of major advances in the fight against Covid-19 is leading to an unparalleled rotation in stocks, a counter movement by traders from one equity class or sector into another.
A higher level of optimism driven by progress towards the roll-out of a coronavirus vaccine has prompted many investors around the world to move away from several of 2020’s high-flying stocks, and instead go for those left troubled by coronavirus.
Over the past few days, we’ve seen a significant, extreme rotation from growth to momentum stocks, including stay-at-home tech, to value funds, including financials and industrials, following the positive vaccine news.
Expectations for a potential Covid-19 vaccine are real and the developments are, undoubtedly, extremely positive news for humanity.
That said, the Great Rotation could be misguided, and investors could find themselves being caught out.
They could look to the future to a post-pandemic era with an economy that’s free of the virus. However, the world, global economy, how we live, do business and interact with one another has deeply changed.
It’s highly improbable that things will return to exactly how they were before the crisis, and there are several characteristics of the so-called ‘new normal’ that people advocate. Therefore, these major changes in trend will unlikely be reversed.
A prime example is working from home. Even if only 20% of office staff return to the office full-time, the change in working patterns is vast.
Other examples include videoconferencing replacing business travel, and the rise of online retail. Consumers have truly embraced online shopping, so will they just return to the stores after all this? Then, of course there’s the increased use of apps for everyday tasks including banking and even medical appointments, amongst many other things.
Covid-19 has fast-tracked the growing trend that existed before the pandemic in numerous ways, towards consumer convenience, for 24/7 access, and on-demand.
As such, disposing of stocks that support these key shifts in society and the economy in favour of so-called recovery stocks could well catch investors out.
Moreover, the introduction of a mass global vaccine programme will be a lengthy process in regard to logistics and, of course, tackling the issue of the vaccine cynics.
As a result, the optimal way for investors to best-position themselves to make the most of the opportunities and circumvent the risks is to have a broad spread of investments and avoid second guessing the market.
Nigel Green is CEO and founder of deVere Group, one of the world’s largest independent financial advisory and fintech organisations.
Photo: Kevin Gessner