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Beware style drift as growth outshines value

16 July 2020

Investors should do their research before selecting an investment fund with a particular style as the Covid-19 pandemic fuels the trend towards growth-led stocks, says Quilter fund expert Nick Wood. 

In the battle between growth and value, growth has led the way over the past decade, with recent events cementing the dominance of growth-led portfolios. In the ten years to 30 June 2020, the Russell 1000 growth index returned 390% compared with 169% for the Russell 1000 value index. 

According to Wood, value managers are buying stocks normally associated with more growth-orientated portfolios. Seven of the ten largest US large cap value funds hold at least one of the US tech giants Microsoft, Alphabet, Facebook or Apple, with six of those funds holding at least two of those companies. 

Microsoft is now the most held company despite its share price rocketing by more than 150% in the last three years. 

Wood says: “We have all suffered from the fear of missing out during the Covid-19 induced lockdown. But this fear, combined with the ascendancy of growth over the past decade, may also be influencing value managers to hold companies more traditionally associated with growth-orientated portfolios.

“There are many ways to invest and each process is different. For some value managers, holding these growth companies will make sense in terms of their process and mandate, but I suspect for others may be stretching things a little too far and style drift may be creeping in.”

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