Despite being a pretty terrible investment in 2022, growth stocks could be about to return to favour, according to Gerrit Smit, who runs the £1.45bn Stonehage Fleming Global Best Ideas fund.
He said: “Investors have drastically reduced their positions in growth stocks - those expected to grow sales and earnings at a faster rate than the market average - during 2022 as rising inflation and higher interest rates have led them to seek relatively better returns in companies deemed to be undervalued by the market.
Smit described the 'felt the same pain' as other investors as a consequence of being a growth investors this year, he feels the tide may be about to turn.
He said: “The correlation between the relative Value/Growth index and the real treasury yield clearly demonstrates Value’s ‘need’ for positive real rates.”
For real rates to be positive, interest rates have to be higher than inflation, something which, at present, looks a long way off.”
His comments were made prior to the latest economic data to emerge from the US showing the inflation rate dropped last month, something which has caused growth equities to rise in value.
Smit adds that if a recession is looming globally, “in the past three recessions”, growth stocks have outperformed relative to value stocks.
david.thorpe@ft.com
