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I’m Amber Sinha with CIBC Asset Management. I’m senior portfolio manager, managing global equity mandates.
Since the global financial crisis, we’ve seen sub-par growth in the global economy and also lower interest rates in order to support the economic growth. So, that kind of sets up a market that would favour growth stocks. Now, growth stocks, when growth is sub-par, growth stocks would stand out. Because growth stocks have a significant amount of their value of their cash flows coming to them in the future, they are fairly sensitive to discount rates or interest rates. So, low interest rates and low growth — that’s the perfect environment for growth stocks to outperform. So, not only did they have a very strong 2020, they’ve been having a strong run, I would say, for the last 10 years.
Now, the economy is preparing for somewhat of a rebound after the pandemic. And with that rebound and all the money that’s been put in by the governments, maybe there is some risk for inflation. Now, you transition into a backdrop where economic growth could be accelerating and rates could be rising. That’s exactly the opposite of what I just explained for growth stocks. So, in that sense, the value cyclical elements of the market have been stronger more recently — I would say since November 2020.
My advice for investors would be rather than trying to find growth versus value, I would stick with high quality. Within high quality, I would probably identify two pockets. One would be stocks that have been hit hard by the pandemic but have not had a meaningful recovery, so there are some of those. And then the other pocket, I would say, would be stocks that have been outright Covid winners, stocks that did really well in 2020, because we were all sitting home. And since the vaccine, those stocks have lagged as the market has anticipated a reopening. But some of those changes, I would say, are fairly permanent. So, finding documents online or doing meetings virtually — I think these are changes that are to some extent here to stay, and a reopening of the economy won’t completely reverse them. So, I think that’s another pocket of the market that looks fairly interesting to us right now. Despite the fact that the S&P is back to its all-time highs and the economy isn’t even close, there are still pockets in the market where valuations remain attractive.
As the market has moved on to value and cyclical elements, there are a lot of otherwise very healthy companies that have just gotten left behind because investors have chosen not to buy them. I think there are great franchises in health care, there are the utilities that give you all the consistency you would want in a portfolio. So, these businesses remain great, pandemic or no pandemic. Just because of how the market is behaving, these stocks have gotten left behind.
Technology increasingly plays a bigger and bigger role in our lives. I think just by virtue of that, it’s a sector that one should have exposure to. We continue to like technology, especially after the recent pullback. So, like I said, since November 2020, the market has moved away from growthy elements of the market towards more cyclical. So, as a result, we’ve seen technology stocks lag in a fairly meaningful way. So, those that we like we’re ready to invest in them even more aggressively.
We also like consumer stocks at this point. And I think it’s fairly obvious why. I think there’s massive pent-up demand from consumers. Savings rates have gone up through the pandemic. People really haven’t had much in terms of avenues to spend their money, whether it’s taking a trip or going to the mall or to the movies, what have you. Once we are able to do that, I think there is going to be a lot of consumer spending in that space. When we look at consumer stocks, I would say, we recognize that stocks should be valued differently in a world where there’s a pandemic with no vaccine, and I think valuation should be different when we’re in a pandemic with a vaccine. And I think we are in the latter stage right now. And a lot of the consumer stocks, I think, will benefit as people get out and do everything that they haven’t been able to do over the last year or so.
Somewhat related, we also like travel-related stocks. In a world when there’s a pandemic with no vaccine, I think you would want to shy away from those stocks. But now that we have not one but multiple proven vaccines, we are trying to take baby steps back into that space. Given that we are not completely past the pandemic, I would say, we would still lean towards travel-related stocks that do not involve crossing international borders. I think that happens at the very end. So, think of activities like going to the movies, restaurants, domestic travel. I think those would be great places to be in through the summer as people have the opportunity to start spending money and do things that they haven’t really been able to over the last one year.