The balanced approach to investing

LAST UPDATE 24 MARCH 2021

The recent rotation has spotlighted how quickly an investment style can fall in or out of favour. For many investors, timing the market is a challenge, which makes a truly active yet balanced approach appealing…

In stock market terms, there have been few years less alike than 2020 and 2021 are shaping up to be. Last year, as the Covid-19 pandemic raged around the world, the rise of many of the world’s stock markets was supported almost wholly by a handful of key companies. Although the beginning of the pandemic saw some market turbulence, over the course of the year the stock prices of the FAANGs’ soared, while much of the rest of the S&P 500 struggled. This pattern was repeated in countries like the UK, with ‘growth’ stocks largely experiencing a vintage year, while their ‘value’ counterparts lagged.

What a difference a quarter makes. Hopes of an economic recovery surged in the closing weeks of 2020 due to the global rollout of vaccinations, and in turn encouraged investors to look towards the very value companies that historically benefit most in these conditions. In the first quarter, the FAANGs – and more defensive stocks more broadly – saw a marked sell off, while companies as diverse as banks and media companies saw their stock prices march upward. In fact, at the beginning of 2021 UK value stocks were extraordinarily cheap versus almost any previous time period, before posting strong and sustained rises through January.