Snapshot

Vaccine provides welcome boost for value


Last week’s news that the Pfizer/BioNTech vaccine is effective at preventing Covid-19 was a huge boost for everyone, including the stock market. But not all parts of the market responded in the same way. Specifically, the news triggered a swift rotation from growth to value, as the table below shows.

518240-Value-table.png

While the update on the vaccine is clearly great news, the sharp share price moves were really a reflection of just how polarised markets have become.

A range of “work from home” stocks, whose shares have directly benefited from the pandemic over the last six months or so, saw prices lurch downwards. By contrast, a host of hitherto downtrodden and unloved businesses were leading markets upwards.

In our view, the main lesson to take from all this is not the identities of the risers and fallers, but that when good news is priced into a stock, any bad news can have a disproportionately negative effect. Similarly, when you have bought a business on a cheap valuation, a little good news can go a very long way.

The rotation reminds us that just as stocks that are “priced for perfection” eventually disappoint, so cheap stocks – those trading at a discount to their underlying intrinsic value - are unlikely to stay cheap forever.

Even after last week’s bounce, 2020 has still been a dismal year for value, as the chart below shows.

518240-Value-chart1.png

Value stocks continue to trade close to all-time lows compared to growth stocks and far below their long-run average, as the chart below shows. We do not profess to know if the tide has turned but we do think there is a huge opportunity for mean reversion. Investors who have all their eggs in the growth basket could find they miss out, as and when that reversion comes.

518240-Value-chart2.png

 

The views and opinions contained herein are those of the Authors, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.

 

This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.

 

Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get back the amount originally invested.

 

Schroders has expressed its own views in this document and these may change (to be used if the 1st statement above is not being used).

 

Schroders will be a data controller in respect of your personal data. For information on how Schroders might process your personal data, please view our Privacy Policy available at www.schroders.com/en/privacy-policy or on request should you not have access to this webpage.

 

Issued by Schroder Investment Management (Europe) S.A., 5, rue Höhenhof, L-1736 Senningerberg, Luxembourg. Registered No. B 37.799. For your security, communications may be taped or monitored

 

The forecasts stated in the document are the result of statistical modelling, based on a number of assumptions. Forecasts are subject to a high level of uncertainty regarding future economic and market factors that may affect actual future performance. The forecasts are provided to you for information purposes as at today’s date. Our assumptions may change materially with changes in underlying assumptions that may occur, among other things, as economic and market conditions change. We assume no obligation to provide you with updates or changes to this data as assumptions, economic and market conditions, models or other matters change.