Value and quality stocks are in demand, and income and momentum are gone

Investors are optimistic and in the mood to bargain-hunt for stocks as markets recover from the pandemic, a new study reveals.

Nearly two-thirds of financial advisors say investors would like to invest in cheap value stocks over the next 12 months, and about half say they want quality companies with strong balance sheets.

Value stocks tend to outperform at turning points like the ones markets are experiencing right now, Schroders explains in the release of his latest research.

Looking ahead: Investors are eager to buy stocks, but they are also looking for quality

Growth companies, which tend to grow their business and grow their revenues faster than other companies but may be making less profit, are currently less favored due to the expectation that interest rate hikes are imminent and will hit their prospects, he adds. up. the asset manager.

This contrasts with cheap value stocks of companies that have seen their price and businesses dented by the coronavirus crash and lockdowns, but could start monetizing again as restrictions ease, e.g. cinemas, airlines and hospitality businesses.

The story of growth investing has been dominated by US tech stars in recent years, but examples of UK-listed growth stocks include Ocado, Asos and Boohoo.

Nearly half of financial advisors expect market volatility to increase over the next five years, which would also benefit value stocks in a ‘cyclical rotation’ away from growth stocks.

About 45 percent of advisors say equity investors still want to invest in growth and small-cap stocks in the coming year.

But according to Schroders polled, far fewer investors say they want to invest for income or pursue a “momentum” strategy.

See below and scroll down for an explanation of these investment goals and styles.

Current trends: What kind of stocks do investors want to put their money in?

Current trends: What kind of stocks do investors want to put their money in?

The survey also found that more than 50 percent described sentiment among most of their customers as optimistic, meaning positive and confident.

The number who said investors they dealt with were bearish, meaning nervous or negative about the market outlook, fell from 50 percent last November to 8 percent in May.

The groundbreaking announcement of a 90 percent efficacy Covid-19 vaccine was made on Nov. 9 by developers Pfizer and BioNTech.

Three quarters of advisers expect higher global growth over the next five years, while four fifths think growth in the UK will pick up significantly over the same period.

Alex Funk: We are now starting to see confidence being restored

Alex Funk: We are now starting to see confidence being restored

They also reported a drop in the number of customers delaying retirement due to concerns about reduced capital or income from 49 percent in April 2020 to 34 percent in May 2021.

Meanwhile, a separate Schroders survey of people planning to invest at least £10,000 in the coming year found that 58 percent plan to save more after the pandemic than before, and this sentiment was strongest among younger investors in the age of 18-37 years.

About 36 percent of those surveyed said their savings plans were disrupted by job cuts and leave during the crisis.

Alex Funk, chief investment officer at Schroder Investment Solutions, said: “Following the impact of the pandemic on investor confidence, we are now starting to see confidence being restored and advisors are starting to look for new investment opportunities for their clients.

“While lingering uncertainty and market volatility is expected to continue in the near term, it is encouraging to see advisors reporting that the number of clients delaying retirement due to concerns about reduced capital or income has declined.”

“From the acceleration of new trends, market rotations and disruption to the traditional growth sectors, this is a potentially exciting time.”

Cracking numbers: More than 50 percent of advisors described sentiment among most of their clients as optimistic in the most recent survey

Cracking numbers: More than 50 percent of advisors described sentiment among most of their clients as optimistic in the most recent survey

Investment trends explained

Schroders offers the following slang buster.

Where the

A value-based strategy is based on the fundamental analysis of companies, with a focus on valuation and balance sheet strength.

It involves buying stocks that trade for less than their net asset value and selling them when they trade above their net asset value.

This strategy is based on the belief that markets tend to overreact to both good and bad news, allowing value-oriented investors to take advantage of price distortions before prices return to fair or intrinsic value.

In the long run, low-priced stocks (value stocks) have historically yielded more than high-priced stocks (growth stocks).

What's next?  More advisors are positive about UK growth than about global growth

What’s next? More advisors are positive about UK growth than about global growth

Quality

A quality-based strategy focused on investing in companies with sustainable business models and sustainable competitive advantages.

It aims to exploit the potential premium that investing in high-quality stocks can offer over low-quality stocks.

Over the long run, high-quality stocks, which tend to have more stable earnings, stronger balance sheets and higher margins, will typically outperform low-quality stocks.

small cap

A small cap strategy will focus on investing in companies with a smaller market capitalization.

In the long run, small cap stocks tend to outperform large cap stocks.

This reflects the greater ability of small companies to achieve excessive growth and the compensation investors expect to receive for investing in stocks that may be less liquid than large caps or, alternatively, more susceptible to changing business cycles, defaults and volatility.

Grow

Alpha, focus, dynamic, optimal…

What does this cryptic investment jargon actually mean? Find out here.

A growth strategy will focus on investing in companies with strong growth prospects.

This is often extended to include the concept of growth at a reasonable price (GARP) to ensure that stocks represent a reasonable level of volatility, return and quality.

Companies that can grow their revenues faster than others tend to perform better.

Income

A separate investment strategy aimed at regular income.

momentum

A momentum-based strategy aims to identify stocks with a positive growth trajectory and weight them in the decision to invest, along with the underlying fundamentals.

Market trends, for example rising or falling stock prices, are more likely to continue than reverse.

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