The Nasdaq fell 10% in roughly three weeks from mid-February to March 8.
Since then, the tech-heavy index is bouncing back. The Nasdaq is up 4% since that March bottom.
A group of fund managers is losing faith in this growth-focused sector, though. They think value stocks will outperform growth stocks over the next year.
Unfortunately, these folks have a history of getting this wrong. Following their lead to value stocks is not a great idea based on the data. Instead, growth stocks could still rally higher from here.
Let me explain…
The Bank of America Merrill Lynch Global Fund Manager Survey came out earlier this month. The survey polls roughly 200 fund managers that have a combined $630 billion in assets under management.
It gives us a look into what these professional money managers think about the market. And when these folks all think the same way, it can give us powerful investing insights.
Today, the majority of them are moving away from the growth sector and into value stocks.
It’s the largest shift to value in the survey’s history. A net 52% of managers expect value stocks to outperform growth over the next 12 months.
That’s a big number, considering that growth stocks have outperformed for years. But we can’t simply take these folks at their word.
You see, we’ve seen similar setups at the start of 2009, 2014, and 2016. Let’s take a quick look at what happened in the sectors during those periods…
Fund managers were betting on value stocks to outperform growth going into 2009. While both sectors did well from the start of 2009 to the start of 2010, growth stocks were still the clear winners.
They were up 29% over that period. Meanwhile, value stocks were up just 20%.
We saw another shift to value in late 2014 in the fund manager survey. Yet, owning value over growth stocks was the wrong call again.
Growth stocks eked out a 6% gain from the end of 2014 to the end of 2015. Value stocks were down 3% over the same period.
Our last example came in mid-2016. Fund managers were again betting on value to beat growth. But that didn’t happen…
Growth stocks rallied 19% from mid-2016 to mid-2017. And the value sector was up just 16%.
In short, fund managers are now betting on value stocks to beat growth stocks. Today’s reading is the highest in the Global Fund Manager Survey’s history. But that doesn’t mean we should follow their lead.
These folks have a history of getting this bet wrong. And that means growth stocks are still likely to outperform in the next few months.
If you want to take advantage of it, you can buy the iShares S&P 500 Growth Fund (IVW). This fund tracks the largest growth stocks in the U.S. market. And based on history, it’s positioned to outperform.
Good investing,
— Chris Igou
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Source: Daily Wealth