Strategies for Markets in Transition

Is it Time to Reconsider Growth and Value?

Over the past decade, markets and the global economy provided an ideal environment for growth companies to shine. However, with change in the air – an ongoing pandemic and a momentous election cycle – will the growth stocks that have propelled stock markets to historic highs still have their time in the sun?

The past ten years have seen a confluence of factors that made it easy for growth stocks to be a firm favorite in many investors’ portfolios. Low interest rates, tame inflation and an increasingly digitalized world have not only caused stocks, especially those related to technology and e-commerce, to become dominant worldwide, but also caused a major upwards drive in stock market levels.

Low interest rates have meant an abundance of cheap capital for these growing companies. Simultaneously, benign inflation has negatively affected many companies in the value sectors, such as energy and financials.

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We believe a shift is happening

However, these times can’t last forever. We’re seeing evidence of a shift in markets, the economy and investor considerations in the wake of a global pandemic, including:

 

Valuation gaps

The gap between value and growth stocks is at its widest point in history – this brings opportunity for discerning, nimble investors.

 

 

Inflation is making a comeback

Even before COVID-19, the government and Federal Reserve have pumped an enormous amount of money into our economy to support markets and the economy. This could result in inflation pushing higher from its current low.

 

 

Pandemic changes

In a very short time, the global pandemic has fundamentally altered the way we view many things. The same goes for companies: some industries and businesses look to be structurally impaired. Alongside this, the crisis has caused many investors to be more discerning about the way companies seek to make their money, with a greater focus on the quality and sustainability of earnings.

 

What might this mean for US equities going forward?

As the economy, markets and the political environment transition, we believe now is the time for investors to also consider taking an active approach to shifting their US equity exposure -- moving away from a myopic focus on growth into high quality companies that may be more suited to potentially producing attractive risk/reward characteristics and sustainable returns over the long-term.

The conditions during this transition have tended to favor value companies, though we are not advocating an all-out value and no-growth approach. The many potential political and tax changes on the horizon may adversely impact industries and specific companies in both the value and growth camps. We conclude, then, that these times call for a more flexible approach with the goal of extracting opportunities – and avoiding the risks – for stable growth and quality value. 

Find out more here  for how we believe portfolios could reflect these transitions.

Time to Reconsider Growth and Value? 

Are market and economic dynamics poised to change? If so, how can investors position themselves to pursue return and manage risk in a shifting environment?

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Opportunities in Equity Funds

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A Flexible Core Equity Strategy Pursuing Sustainable Growth

Pioneer Fund has invested in quality sustainable businesses since its inception in 1928, flexibly allocating to both value and growth companies to pursue the best opportunities for risk-adjusted returns over time.

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Looking for Growth, but Concerned About Volatile Markets?

Pioneer Fundamental Growth Fund invests primarily in US large capitalization companies for long-term capital growth. We believe investing in quality stocks at attractive valuations can generate attractive risk-adjusted returns over time.

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