Three stocks to profit from a value rotation

Momentum takes a beating, Value remains near highs

So it is true: what goes up quickly, can also come down quickly! The month of March has seen US momentum stocks fall sharply, while in contrast value stocks have held up very well. 

Figure 1 shows that momentum stocks (the line in black) have hardly outperformed value stocks (the line in yellow) over the last half-year, after a torrid month of March.

1. MOMENTUM STOCKS TAKE A HIT, VALUE HOLDS UP WELL

Source: Bloomberg

Three sub-sectors in particular have been hard-hit (Figure 2):

1. Biotech has lost 13% from its high at in February (line in yellow);
2. Social media stocks such as Facebook and Twitter have lost 14% in aggregate from their peak (line in green);
3. Recent IPOs retreat 6% from the peak, judging by the First Trust US IPO ETF (FPX; line in black).

2. BIOTECH, SOCIAL MEDIA AND IPOS CAUGHT IN THE MOMENTUM RETREAT

Source: Bloomberg

Yield back in vogue

Long-term government bonds have performed well of late. Both European and US long-term government bond funds have gained significant ground over the year-to-date. This, in spite of the poor yields being offered by both (2.1% for a UK Gilt ETF; 3.1% for a US 20+ year Treasury bond ETF).

We can see that yield is becoming very popular once again as an investing strategy; this is evident from the recent performance of both US high yield corporate bonds (in black) and also US real estate trusts (REITs; in orange)...

 

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Three-stocks-to-profit-from-a-value-rotation

Happy value hunting!

Edmund