Investors risk being caught out by market rotation
Investors need to be wary of being caught out by the market rotation driven by the success of the COVID-19 vaccine trials.
Since the announcement of two trials, one from Pfizer and BioNTech and one from Moderna which both had over 90% success rates, there had been talk of a market rotation from growth to value stocks and from large to small caps.
This was on the expectation that life would likely be returning to normal once the vaccine was in place and therefore stocks which had been hit by COVID-19 would increase in value.
But Nigel Green, chief executive of deVere Group, said this thinking was “misguided” and investors should not get carried away by the vaccine optimism.
“In the last few days, there’s been a historical, violent rotation from growth and momentum stocks, like stay-at-home tech, to value funds, including financials and industrials, as a result of the positive vaccine news,” he said.
“Hopes for a potential vaccine are legitimate and the developments are, without question, positive news for humanity. However, ‘the great rotation’ could be misguided and could catch-out investors.”
He added stocks that had been thriving in the pandemic era were unlikely to reverse as many changes – such as remote working and online shopping – would continue post-pandemic.
“In many ways, COVID-19 simply accelerated the growing trend that existed before towards consumer convenience, for 24/7 access and on-demand,” he said.
“Other examples include business travel being replaced with videoconferencing, and online retail – people have fallen in love with it. Will they all suddenly go back to the stores? Then there’s the use of apps for everyday tasks such as banking, also for healthcare and medical analysis, amongst many other things.
“Therefore, dumping stocks that support these major societal and economic seismic shifts in favour of so-called recovery stocks might catch investors off guard.”
AUTHOR
Laura Dew
Recommended for you
With regional and rural suburbs exhibiting high spare capacity to invest, Money Management speaks to three regional advisers on the opportunities beyond the major cities and the importance of a strong network.
Platform consolidation is expected to accelerate among financial advisers this year, as software company Finura pinpoints which two platforms are set to be the winners, thanks to this trend.
The software provider has made several appointments in its APAC wealth propositions team, with a focus on driving growth across digital advice, Xplan and strategic partnerships.
The platform has announced it plans to close its Xplore managed discretionary account service in 2026 which holds $2 billion in funds under administration.
