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Global value leads the way in March, chart toppers rotate
The first quarter of 2021 saw renewed confidence in global equity markets, supported by positive developments in the fight against coronavirus together with better-than-expected economic data. Fiscal stimulus and vaccine rollout have far exceeded expectations, causing equity markets to overcome bouts of volatility.
The Dow Jones Industrial Average and S&P 500 indices hit new all-time highs. The yield on the 10-year US Treasury Note surged to 1.778% (up 83 basis-points), making it the largest net gain since Q416 and in the process, triggering a shift from value to growth. Value managed to outperform growth by 10% in the quarter.
The two over-riding themes boosting equity markets are President Biden’s US$2.25 trillion ($3.2 trillion) infrastructure and climate change plan, and vaccine rollout progress. The Dow closed the quarter +6.80% and the S&P 500 +4.70%. On the other hand, the technology sector was the worst-performing, sold-off by investors due to the sharp rise in bond yields and inflation outlook causing valuation concerns. Looking at the table below, the rotation from growth to value is clear with the Russell 1000 Value index closing +5.9% and the Russell 1000 Growth index closing +1.70%.
After years of significant outperformance, growth managers are finally coming under pressure, as old fashioned, ‘value’ companies more closely connected to the economy rebound, with many doubling in a short period of time. In the table below we compare some of the most widely held global equity strategies on their short-term performance.
Looking at the Global Growth Fund table, it’s fairly evident that beaten-down value managers have leapt to the lead, while high-price/earnings (P/E), over-valued growth managers were left behind. Award-winning fund manager Hyperion only managed a paltry +1.28% on its Global Growth fund for the quarter.
In comparison, value-focused Platinum International returned +8.91% and deep-value fund Orbis Global Equity posted a +8.21% return. Heavyweight ($13.7 billion) Magellan Financial Group’s Global Fund wasn’t much chop either, managing just 3.32% for the quarter and 4.42% for the year. The gold-rated fund is having a shocking year, and things aren’t getting any better. According to Morningstar, it delivered “its worst year in a decade in 2020, delivering investors a negative return (-0.2%) and underperforming both the Morningstar World Large Blend category (5.69%) and the MSCI World Ex Australia NR AUD index (5.73%).”
While media experts are calling this the “great rotation” from growth into value, the question is how long it will last. As seen with Ark ETF’s phenomenal growth, most of the stunning growth has come on the back of excessively overpriced tech stocks, i.e. Tesla and Zoom Video Communications Inc. The recent correction in growth stocks may well be a necessary and healthy one to correct the excess so that stock prices fell back in line with company fundamentals. Value stocks were dirt-cheap and may have had their spotlight moment.
Growth stocks in the tech innovation, platforms servicing the “gig economy” and the sustainability space remain among the most popular, as shown by the level of assets under management, with the likes of Microsoft and Alphabet reporting stunning sales numbers last week.
