The victory of Joe Biden in the US presidential election is unlikely to lead to a prolonged period of outperformance for those stocks most associated with the value style of investing, according to a range of market participants.
A part of Mr Biden’s election platform was a significant increase in government spending in order to boost economic growth, a process known to economists as fiscal stimulus.
Such a stimulus injects capital into the economy. Such a boost in economic activity should act to be inflationary in the short term and boost economic growth.
Such a boost for companies that have a performance more impacted by the performance of the wider economy. If economic growth picks up, investors tend to focus less on the companies that are growing, because many will be, and more on the valuations at which businesses trade.
Those are the conditions in which value investing tends to thrive.
For most of the past decade, value stocks have underperformed in the context of a world where economic growth is limited and inflation has been low. In the immediate aftermath of the election result being confirmed, value stocks globally performed better.
Simon Edelsten, who runs the £367m Mid Wynd investment trust at Artemis, says that while a stimulus will likely happen, it is unlikely to be enough to change market sentiment for the long-term.
He says: “The case for some recovery stocks has certainly improved with Biden plus the vaccine, but that doesn’t cover much of what people call value which includes a lot of sectors which will still struggle such as banks facing central bank money printing and bad debts. But the relative performance prospect has swung away from being all about defensive growth stocks such as consumer staples and modest growing tech. The stimulus under Biden will be large - a trillion and a bit, but not mega as had been touted so yes maybe challenge for the dollar but not as much inflation risk.”
Fahad Kamal, chief investment officer at Kleinwort Hambros, a wealth management firm, says that the underlying conditions which have led to the growth style of investing outperforming the value style over the past decade, including ageing populations, high debt levels and technological change, have not gone away, and may have been exacerbated to some extent by the pandemic.”
.david.thorp@ft.com
