In 2013, investors chose value over growth stocks.
“That [shift] manifested itself most obviously in the second half of the year,” says George Dent, investment manager at Walter Scott & Partners Limited in Edinburgh, UK. His firm manages the Renaissance International Equity Fund.
And “going into the first quarter of 2014, that shift towards value [investing] really persisted, particularly in Europe,” he adds. “At the same time…[we’ve also] seen an increase in risk appetite. That’s benefitted areas such as biotech.”
As a result, the quality growth approach produced weaker relative performance throughout Q1 2014.
Dent’s not worried, though, since this isn’t the first time a dip has occurred. “We’ve been through a number of periods like this. And what we’ve learned is the important thing is to…continue to invest the way you always have. [That will] ultimately lead to good performance both in absolute terms and in relative terms.”
And, while Dent notes you can’t make market predictions based on past performance, he’s found that weaker performance periods for the quality growth approach have historically been “followed by periods where [the strategy’s] relative performance is disproportionately strong.”
For example, Dent’s U.S. exposure was relatively low before 2008 because valuations and price-to-earnings ratios were unattractive. The crisis changed that since he started to identify a greater number of high-quality stocks in the American market, which caused his U.S. weighting to creep up over the following two years.
Still, it’s difficult to predict when such a transition might happen and how long trends will occur. That’s why it’s important to communicate with clients while you monitor market trends.