Cover story – The great rotation


The great rotation from growth to value stocks, which has been discussed for some time, appears to have finally arrived – and it could be a big moment for institutional investors. There are several reasons to support the great rotation thesis. Firstly, value stocks should, in theory, see their earning power benefit from an economic recovery – which is the conclusion of several analysts’ economic outlooks published this year. There is also the potential for the mammoth fiscal stimulus and economic recovery to produce higher inflation and force interest rate rises. Higher interest rates have a negative effect on assets with longer duration cashflows, and since the valua- tions of growth stocks depend on cashflows expected further into the future, the faith is that higher interest rates will cause capital to move into cheaper shares with cashflows of shorter duration.


The outcome of the US election and the discovery of effective Covid-19 vaccines have also had a stirring impact, prompting a rotation out of technology and other stocks deemed to benefit


18 | portfolio institutional | May 2021 | issue 103


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