Stock market’s ‘Great Rotation’ to catch out investors, warns deVere boss

19 Nov 2020

The growing noise about the rotation from growth to value stocks as a result of the optimistic vaccine news is “misguided” and could “catch-out investors,” warns the CEO of one of the world’s largest independent financial advisory and fintech organisations.
The stark warning from Nigel Green, chief executive and founder of deVere Group, which has $12bn under advisement, comes following several key breakthroughs in the fight against Covid-19 causing an ‘unprecedented’ rotation in stocks.
Market rotation is the counter movement by traders from one equity class or sector into another.
Mr Green warns: “Optimism driven by progress towards a Covid-19 vaccine has prompted many investors around the world to ditch several of 2020’s high-flying stocks - the ones that benefitted from the impact of the pandemic - and buy ones that were beaten down by coronavirus. 
“In the last few days, there’s been a historical, violent rotation from growth and momentum stocks, like stay-at-home tech, to value funds, including financials and industrials, as a result of the positive vaccine news.
He continues: “Hopes for a potential vaccine are legitimate and the developments are, without question, positive news for humanity.
“However, The Great Rotation could be misguided and could catch-out investors.
“They might be looking ahead to the post-pandemic era with a virus-free economy, but the world, the global economy, how we live, do business and interact remains fundamentally changed.
“It is doubtful the world will go back exactly to how it was pre-Covid – there are many aspects of the ‘new normal’ which people like and support.  As such, some of the major shifts are unlikely to be reversed.
“The remote working phenomenon is one example. Even if 20% of office workers return to the office full time, the change in working patterns is monumental.  
“Other examples include business travel being replaced with videoconferencing, and online retail - people have fallen in love with it. Will they all suddenly go back to the stores? Then there’s the use of apps for everyday tasks such as banking, also for healthcare and medical analysis, amongst many other things.
“In many ways, Covid-19 simply accelerated the growing trend that existed before towards consumer convenience, for 24/7 access and on-demand.
“Therefore, dumping stocks that support these major societal and economic seismic shifts in favour of so-called recovery stocks might catch investors off guard.”
The deVere CEO also highlights that the roll-out of a mass global vaccination agenda will be a lengthy process and will face an uphill logistical struggle, plus there are the “vaccine sceptic concerns to address.”
He concludes: “The best way for investors to position themselves for the opportunities and to mitigate risks is to have a broad spread of investments, and not to try to second guess the market.”