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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.”

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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.”

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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.

Read: A market portfolio won’t make you rich

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.

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Innovative ways to pick stocks

How to calm angry clients

Think big with small stocks

Expect moderate growth for next two years

Cool the appetites of risk-hungry clients

Gaining with globe-trotting portfolios

Originally published on Advisor.ca

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