This week in MoneyWeek we take a look at a shift in the investment landscape as the potential of growth stocks wanes, to be replaced by the return of value stocks.
Plus, Merryn Somerset Webb interviews pensions minister Ros Altmann, and David Stevenson investigates a defensive way of buying in to US equities. For all that and more, sign up to MoneyWeek magazine now.
The return of value
The biggest investment theme of 2016 isn’t the strength of the US dollar – despite its huge effect on virtually every other asset price in the world. And it’s not the price of gold. They’re both significant themes, says Charlie Morris, but they’re not what matters most.
The key theme for the year is value stocks, says Charlie, and their performance when compared to growth stocks. If you’re not familiar with the term, a “value stock” is a stock that’s cheap, but whose price doesn’t tend to rise particularly fast.
“Buy stuff when it’s cheap”, says Charlie, and “history shows that you’ll tend to make more money in the long run.” The thing with value stocks, though, is that they’re unpopular – that’s why they’re cheap. So it takes a bold investor to take the plunge.
A growth stock, on the other hand, might not be cheap, but the share price keeps on rising as investors pile in. For the past few years, investing in growth stocks has been all the rage. That’s what people buy in a bull market, after all.
But “this year has seen the start of a shift”, says Charlie, and it looks like value stocks could be the key to making a decent return for the foreseeable future. He produces a very telling chart that explains it all.
If you want to know more – and learn exactly how to play this new trend – sign up to MoneyWeek magazine now.
The safer way to buy US stocks
The US stockmarket can be a tricky investment, says David Stevenson. It can become “woefully overvalued” – many think it is at the moment – so “simply tracking the S&P 500 might not always be the best tactic”, he says. But it’s a “very foolish investor” that completely ignores US equities. So what can you do?
David looks at a couple of “smart beta” exchange-traded funds that aim to track only certain value-oriented stocks, plus one that attempts to smooth out the market’s volatility.
How to stop pension funds going the way of BHS
This week, our editor in chief, Merryn Somerset Webb, talks to pensions minister Ros Altmann. Britain’s defined benefits pension system is in a lot of trouble – as evidenced by the black hole in the BHS scheme. The combined deficit of companies in the FTSE 350 is around £84bn.
Despite a market distorted by quantitative easing (which has pushed down the price of government bonds) funds are constantly advised to buy the lowest risk thing they can. And so they all pile in to… government bonds. The trouble is, the more gilts they buy to “de-risk” their portfolios, the greater their deficits.
The solution, says Altmann, is to diversify. Find out what else she has to say by sign up to MoneyWeek magazine now. It’ll set you back just £6.
Carney’s unwise Brexit intervention
Matthew Lynn chides Mark Carney, the Bank of England governor, for warning of the consequences of voting to leave the EU. “Mark Carney is one of the most trusted voices in this debate”, says Matthew. “But that doesn’t mean his intervention was wise.”
If Britain does vote to leave, the job of the Bank will be to calm things down. “But how can it do that if it has already said there will be chaos?” The Bank should give us the fact, and leave us to make up our own minds, says Matthew.
Elsewhere, Edward Chancellor takes a look at Britain’s dysfunctional housing market. House prices are looking “pretty much like a bubble”, he says. But the problem isn’t a lack of supply – “the supply of houses has risen faster than the population in recent decades”, he says. The problem is our old friend interest rates – specifically, “the extreme affordability of mortgages”.
For beginners, Merryn explains the difference between active and passive funds. And on his investment strategy page Matthew Partridge warns against the “herding” instinct (good advice that pension funds could heed, too) when looking where to invest, and gives five tips taken from the world of behavioural finance that could make you a better investor.
Alex Williams runs his eye over a tasty looking stock on his shares page, along with his usual roundup of the best shares from the rest of the UK media. Sarah Moore investigates the pros and cons of fixed-rate mortgages, and Natalie Stanton brings us the latest on pensions.
All that and plenty more, including five pages of travel, toys and property. Why not sign up to MoneyWeek magazine now?