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
The new financial year has got off to a strong start in adviser gains, helped by new entrants, after heavy losses sustained in June.
Michael McCorry, chief investment officer at BlackRock Australia, has detailed how investors are reconsidering their 60/40 portfolios as macro uncertainty highlight the benefits of liquid alternatives.
Having reset its market focus to high-net-worth advisers, Praemium’s administration solution has been selected by Bell Potter in a deal that increases the platform's funds under administration by $6 billion.
High transition rates from financial advisers have helped Netwealth’s funds under administration rise by $3.7 billion in the fourth quarter of FY25.
