J.P. Morgan Fund Manager

A surprise comeback from growth stocks?

Ben Stapley looks back at the surprise renaissance experienced by growth stocks in 2017 and examines their prospects in 2018.

Go to the profile of Ben Stapley
Jan 04, 2018
0
0
Upvote 0 Comment

In the second half of 2016, the improving global outlook saw investors finally pluck up the courage to buy value stocks. In the UK, this led to value companies outperforming growth companies by an impressive 13% over that period.

In 2017, somewhat surprisingly, growth stocks staged a comeback: in the US, they have outperformed value stocks by a staggering 17%, and in the UK, they have also outperformed although by a more modest low single digit percentage. What does this tell us? It may be a sign that the market is no longer quite so enthusiastic about the prospects for economic growth and reflationary policy.

Growth stocks could be set to keep outperforming their value counterparts

Experience tells us that the growth style tends to outperform the value style in periods of relatively moderate economic activity, as investors place a premium on those growth stocks with the power to grow their revenues and profits in a reliable way. With UK real economic growth forecast to moderate to just 1.4% in 2018, it looks like the environment should remain relatively supportive for genuine growth stocks.

In addition, a low interest rate environment tends to favour growth companies as future fast growing earnings streams are discounted at a lower rate. Yet despite seeing interest rate rises from both the Fed and the Bank of England in 2017, the long end of the yield curve hasn’t moved. This means the yield curve is flattening, which should continue to support growth stocks over value stocks, which prefer a steeper yield curve.

The technology sector remained an engine of growth in 2017

One of the best performing sectors in 2017 was a classic growth sector - Technology. There has been a lot written and said about the meteoric rise of the “FANG” stocks (Facebook, Amazon, Netflix and Google) in the US this year. Although Tech in the UK only represents 3% of the FTSE All Share Index, we have had a few notable success stories of our own especially in the IT infrastructure and IT security markets, with companies such as Softcat and Sophos comfortably outperforming the likes of Apple this year.

Airlines stocks stage a surprise take-off

One surprise growth sector in 2017 was airlines. The street was expecting double-digit earnings declines from British Airways due to the headwinds from Brexit, rising fuel prices and competition from budget airlines. But latest forecasts suggest that the company actually looks set to deliver double-digit earnings growth due to a far better pricing environment and improving industry dynamics.

For example, among the low-cost carriers, Wizz Air is growing strongly into the underpenetrated Central & Eastern European market and has swept up Monarch’s slots at Luton. And this is a powerful reminder that the concept of growth is highly dynamic, so investors need to constantly challenge their assumptions in order to access the best growth opportunities.

Ben Stapley is the portfolio manager for the JPM UK Equity Growth Fund.

Next steps:

Advertisement

Read more about J.P. Morgan Asset Management's UK capabilities

Unless otherwise stated, all data was sourced from Bloomberg as at 20 December 2017. For Professional Clients/ Qualified Investors only – not for Retail use or distribution. This is a marketing communication and as such the views contained herein are not to be taken as an advice or recommendation to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are, unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and investors may not get back the full amount invested. Past performance and yield are not a reliable indicator of current and future results. There is no guarantee that any forecast made will come to pass. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/jpmpdf/1320694304816.pdf. This communication is issued in Europe (excluding UK) by JPMorgan Asset Management (Europe) S.à r.l., 6 route de Trèves, L-2633 Senningerberg, Grand Duchy of Luxembourg, R.C.S. Luxembourg B27900, corporate capital EUR 10.000.000. This communication is issued in the UK by JPMorgan Asset Management (UK) Limited, which is authorised and regulated by the Financial Conduct Authority. Registered in England No. 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP. 0903c02a82020ec4

Go to the profile of Ben Stapley

Ben Stapley

Fund Manager, JPM UK Equity Growth Fund, J.P. Morgan Asset Management

Ben Stapley is portfolio manager of the JPM UK Equity Growth Fund within J.P. Morgan Asset Management's UK Equity team.

No comments yet.