The vaccine rally has seen a big shift in investor expectation for the economic outlook. Faster economic recovery would see an increase in demand for oil, along with the re-emergence of inflation and the potential for central bank interest rate increases.
As a result, investor attention is moving away from growth and into value stocks.
As shown in the graph below, value stocks have rallied hard since the beginning of November, particularly in the UK with its large weighting to financial services and energy. Mining stocks have also performed well as Chinese demand continues to fuel demand for industrial metals.
But value funds still have some way to go to close the performance gap – a gap that existed long before the pandemic. If the global vaccination runs smoothly, value should have the chance to continue to close the gap.
Charles Younes is research manager at FE Investments