The announcement of a successful vaccine in November 2020 prompted a significant rally in markets, but navigating markets in 2021 has been far more complex than just buying the recovery.
- The vaccines allowed the world to return, tentatively, back to reality
- Value has beaten growth over the year, but not by much.
- The top-performing funds have a value flavour, but most are also managed by strong stockpickers
It is a year since Pfizer announced promising results for its phase 3 vaccine trial, allowing the world to return tentatively to normality. It has been a complex year for fund managers to navigate. Markets were initially dominated by a sharp recovery rally, but have been far less swayed by macroeconomic forces in the latter part of the year. Who has won out in this tough climate?
Value has beaten growth over the year, but not by much. The MSCI World Value index is up 31.4% vs 26.8% for the MSCI World Growth index. Most of this outperformance came in the early part of the year: growth has been in the ascendancy over the past three months. In reality, after the early ‘recovery’ rally, markets have been more nuanced and focused on the merits of individual companies.
As such, the top-performing funds have a value flavour, but most are also managed by strong stockpickers and have some style diversification. Darius McDermott, managing director of Chelsea Financial Services highlights JOHCM UK Equity Income, TM CRUX UK Special Situations, Schroder Recovery and Ninety One UK Special Situations.
Regional leadership has largely been determined by the strength and success of the vaccine rollout. That means the UK. North America and Europe have been strong, while emerging markets have been weak. Emerging markets have also been hit by the weakness of China, with a regulatory clampdown hitting sentiment.
Other notable themes include the strength of smaller companies as investors re-embraced risk. The technology sector continued its outperformance even as ‘value’ areas did well, largely on the back of strong earnings.
The rising tide of the past year has floated most boats. As might be expected in a climate of recovery, the weak spots have been many of the safe havens – notably gold and high quality government bonds. Within stock markets, it has also included some of the pandemic beneficiaries, where valuations had become extended, AO World and Ocado, for example. This shows that even firms that appear to have a strong structural tailwind can be poor investments if the price is too high.
Markets today appear to be moving away from flip-flop between growth and value that has characterised much of the pandemic era and towards a great focus on fundamentals. This should be a better time for active managers and stockpickers, but, as 2021 has shown, predictions are a mug’s game.
