The argument for rotating from Growth into Value stocks has been forwarded many times in the past decade. Anyone who followed it, however, would have made a mistake.
But the time to switch may have finally arrived.
As the FT’s excellent personal finance columnist Merryn Somerset Webb explains, there are now compelling reasons to disembark the Growth train.
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The graphic illustrating her piece (from our partners PrimeCharts) illustrates the point. It compares the long-term outperformance of Vanguard’s Growth ETF over the firm’s Value ETF. This gap has widened dramatically in the last two years.
By Vanguard’s calculations, $10 000 invested in its Growth ETF a decade ago is today worth $58 500. The same investment into the Vanguard Growth ETF has grown to a more modest $37 280.
In Rand terms that initial R82 000 investment in 2011 has ballooned to R875 000 in the Growth ETF compared with R558 000 in Value – an outperformance of 57%.
Ms Webb argues the massive debt incurred by governments in response to the Covid-19 pandemic will soon need to be addressed. The consequence will result in the deadly combination of higher taxes and, worse, the old chestnut of inflating away the State debt mountain.
Neither measures benefit Growth companies. From their perspective, it gets worse.
The move towards higher taxes began in earnest on Friday when 136 countries struck a deal to impose a minimum global tax rate of 15% This is the biggest change in taxation for more than a century. The agreement was designed to attack widespread tax avoidance by multinationals, specifically Big Tech.
Google and Facebook have been widely referenced are the biggest losers, and and are sure to cough in a chunk of the $150 bn in additional tax expected. The others in the crosshairs, however, are also primarily Growth companies.
Add to that the fact that markets never have permanent one way bets, and the smart call is to switch those FAANG profits into “old economy” stalwarts. Think moving from Google to Warren Buffett’s Berkshire Hathaway; Amazon to Walmart; Facebook to Procter & Gamble. And in the motor sector, from super Tesla and Nia into Ford, Toyota and VW.
It’s impossible to call the top of any market. Although nobody ever rings a bell at the top, as happened ahead of the Chinese Tech crash, we often signals before the tend reverses.
While everyone loves rising a rocket, share market investing is actually more about avoiding losses than hunting ten baggers. Especially now.
More for you to read today (click on linked headline to access) –
* India’s Tata Sons to buy 100% of Air India for $2.4bn. The Indian government’s sale of its loss-making mirror of SAA is the first privatisation in 15 years. It’s a win for PM Narendra Modi’s efforts to push through market-oriented changes.
* WSJ features SA’s Seriti Resources CEO Mike Teke on the Future of Coal. Teke argues decarbonisation shouldn’t come at the expense of development,.
* The Global Tax Damage. Editorial Board of The Wall Street Journal explains how the deal was struck and why US firms will pay higher tax rates than other countries will impose.
* In the local market, it’s also time to examine deep value stocks, including those in the hard hit hospitality sector. Among the bull factors: Virgin Atlantic’s disclosure over the weekend that bookings to SA doubled after last week’s exit last week from the Covid red list.
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