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Pfizer Monday – One Year On…

Posted by: Ruairi Dennehy
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This week marked the one year “Vacciversary” of Pfizer Monday, a pivotal moment for the UK and the rest of the world in finally seeing light at the end of the COVID tunnel.
 
As we have mentioned many times, this date lives not just in the memory for its huge ramifications on global health, but also the subsequent impact on global financial markets.
 
In our blog from a year ago (almost to the day) titled “Pfizer Day – Just Fizz or Something More?” we asserted our confidence in the UK:
large parts of the UK stock market are extremely good value and that once the Brexit distraction is behind us, global investors will re-focus in scale on the UK”
 
We still believe this rings true today.
 
Before that news on the vaccine, evidence was already quietly building, that the best companies in the UK were coping fine, companies which were very cheap and had been ignored by global investors since Brexit uncertainty grew from 2016.
 
By October key sectors were being bought, in particular banks, as we highlighted at the time. This was the genuinely smart money doing what they do best. Then came the vaccine news, Pfizer Monday, 9th November. The outlook was transformed overnight.
 
It was time to buy Value-style funds, and more generally funds linked to a recovery in the UK domestic economy. We also highlighted the potential for UK smaller company funds, given their greater sensitivity to the domestic economy when compared to their large cap peers.
 
Within a small number of days, it was already clear that these Value funds were bouncing hard, and Growth-style funds were being left behind. This was what the history of Value funds said should happen (see our Value eBook), though there was no guarantee.
 
Now we use Pfizer Monday as the inflexion point from which we keep a close eye on that rotation from Growth to Value, to ensure it is sustained.
 
Has This Rotation Been Sustained?
 
In our blog “Inflexion Point: The UK Really Is World Beating” we listed the 10 funds which bounced most in the week the vaccine progress was announced – a very narrow window of momentum. We list these in Figure 1 below, with their 6 month performance from November 2020 to April 2021, and then the subsequent 6 months from May 2021 to November 2021.
 
As one would have expected, and the pattern I’m sure many of you have witnessed with your own investments over the past 12 months, is that the latter 6 months has been fairly subdued compared to the prior 6 months.
 
 
Figure 1 – Value Funds, Sustained Momentum?
Name
Sector
Performance (%)
06/11/2020 to
06/05/2021
Performance (%)
07/05/2021 to
09/11/2021
Artemis UK Special Situations
IA UK All Companies
38.72
0.51
Dimensional UK Value
IA UK All Companies
45.20
0.19
Halifax Special Situations
IA UK All Companies
35.67
-0.87
L&G UK Special Situations Trust
IA UK All Companies
37.83
5.19
Ninety One Global Special Situations
IA Global
49.08
2.24
Ninety One UK Special Situations
IA UK All Companies
50.59
1.09
Quilter Investors UK Equity Income
IA UK Equity Income
37.24
3.93
Schroder Income
IA UK Equity Income
42.20
5.59
Schroder Recovery
IA UK All Companies
44.68
4.75
Schroder UK Equity
IA UK All Companies
36.50
0.26
FTSE 100
 
21.91
4.24

The more poignant question to determine whether this rotation has sustained, especially since May, is comparing the performance of those Value funds above with typical Growth-style funds over the same periods (Figure 2).

 
Figure 2 – Growth Funds, Fighting Back?
Name
Sector
Performance (%)
06/11/2020 to
06/05/2021
Performance (%)
07/05/2021 to
09/11/2021
Baillie Gifford Global Discovery
IA Global
3.34
3.20
Baillie Gifford UK Equity Focus
IA UK All Companies
17.06
-0.35
BlackRock UK
IA UK All Companies
11.80
5.24
Dodge & Cox Global Stock
IA Global
31.65
5.81
GS Global CORE Equity Portfolio
IA Global
11.64
11.3
HL Select Global Growth
IA Global
12.14
12.63
JPM Global Macro Opportunities
IA Targeted Absolute Return
6.34
3.51
JPM UK Equity Growth
IA UK All Companies
21.18
3.40
LF Blue Whale Growth
IA Global
4.35
22.13
Unicorn UK Growth
IA UK All Companies
36.05
3.42
FTSE 100
 
21.91
4.24
As you can see from comparing Figures 1 and 2, some of the Growth-style funds have outperformed their Value counterparts over the most recent 6 months. This certainly isn’t a “Growth trumps Value” conclusion, as we are only comparing 10 funds from each universe and so we are using a small sample size.
 
For example, the Value-esque L&G UK Special Situations fund has still managed to outperform 5 of the Growth-style funds over the most recent 6 months.
 
Another important anecdote here is that the top performing Growth funds are those with high US exposure (LF Blue Whale Growth with 72% and HL Select Global Growth with 70%). Inferable from Figure 3, the US has continued to bounce upwards regardless of Growth or Value. Conversely, a different picture is painted in the UK, where Value (yellow line) has drifted sideways over the most recent 6 months with Growth (blue line) now close on its tail.
 
Figure 3 – UK Growth & Value vs US Growth & Value
Chart, line chart, histogramDescription automatically generated
So the conclusion is more nuanced than simple Value vs Growth. Pockets of Global Growth have been excellent performers in recent months, though in the UK, Value funds and sectors remain attractive opportunities for fund managers and investors alike.
 
What Next For The “Great Rotation”?
 
Despite the differing levels of performance across developed markets, there are similarities in what sectors have been driving this growth. Investec record that:
 
“The leading UK sector, by a mile, is Industrial Transportation, with a gain of 121%. That is followed by Oil & Gas (+69%), Metals & Mining (+56%) and Aerospace (+53%) – all sectors that are deemed sensitive to the “re-opening trade”. Next in line is Banks, which is not so much about re-opening as less concern about bad debts and the potential for rising interest rates to boost profitability.
 
The picture in the US is similar, with Energy (+98%) and Financials (+59%) leading the way, and Consumer Staples (+14%) and Utilities (+5%) lagging.”
 
In the coming months we also have the small matter of inflation, which will no doubt contribute to the Value vs Growth debate going forward. The general consensus is an expectation of a rate rise in either December 2021 or February 2022, especially as the Bank of England confirmed that inflation indices will print at 5% or more in the coming months. Expect to see the Banking sector flourish further in an inflationary environment.
 
Last and most important, history suggests Value funds will notably outperform Growth-style funds in an inflationary environment.  But, to avoid, guesswork, use our Dynamic Fund Ratings to guide your fund selections.
Topic: Sector analysis


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