Global equities have advanced as investors have weighed the worsening coronavirus pandemic against hopes of a potential coronavirus vaccine. As sentiment rises, however, we believe it makes sense to be prudent in terms of portfolio positioning. To be clear, we are optimistic as we look out over one to two years, but we are seeing a second wave of the virus spread, and it is proving to be more extended than the first wave in many places. Vaccine developments are a clear positive, but the market's reaction to the prospect of a post‑coronavirus world creates some near‑term uncertainty and risk.
Striking the Right Balance
One question on investors' minds is that of value versus growth. Thoughts of a post‑coronavirus world understandably cause excitement and rotation toward all things "cheap." However, if the economic recovery is disrupted for any prolonged period, markets may favor the Covid‑on beneficiaries, which tend to sit on the growth side of the style spectrum.
For us, it is not a matter of timing a style cycle. We do not think this is the time to make a call on value versus growth. Instead, we believe the key is to maintain portfolio breadth, diversification and apply risk control and active stock‑decision making as we work through what is going to be an uneven path of recovery and improvement. Valuations are important and we need to manage pockets of excessive optimism, along with any uncertainty that arises with respect to U.S. policymaking.
Applying thought to which stocks look well placed to win on the other side of this crisis, in the second half of 2021 and into 2022, is important for all investors right now, regardless of philosophy. While this is complex, embracing complexity is a challenge we are used to.
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