Website economic downturn The global economic downturn is already a reality, and many believe the arrival is scary recession. But this has not happened yet, so many investors are surprised which sectors to choose for investing in the stock market. What stocks have the best results in such a period?
This is a question that many investors ask themselves, and to which Schroders experts have answered. “Faced with expectations of a slowdown in global growth, investors need to prepare their portfolios“- explains Tina Fong, strategist of the fund manager, who explains what types of stocks performed best during economic downturns or recessions.
So, in terms of style, how should investors position their portfolios in a world that is slowing or declining? Recessions occur when economic activity slows, inflation rises, and central banks tighten policies. That is what is happening now, and, according to expert Schroeders, it is proven “Defensive equality styles were winners. ».
“Historically, more protective styles of justice surpassed their more cyclical counterparts.“Which tend to win the recession. Fong explains that “during a recession, policies often cut interest rates in response to declining growth and inflation” and that “when households and businesses clear their balance sheets, investors begin to assess the recovery of economic activity and corporate profits,” leading to a rotation of more cyclical styles of capital. “
According to analyst Schroeders, during the economic downturn, the winning styles were: strategies with high dividend yield and minimal volatility.. “Investors seem to have sought refuge in stocks that better withstand the challenges of weak economic growth and accelerating inflation,” Fong said.
instead of, small capital stocks lag behind. during periods of economic downturn, because “these companies have less price power than large companies” and, therefore, “especially feel the pressure on profit margins due to rising costs.”
The strategist also notes that ” valuable stocks tended to perform a little better than growth stocks ”, although he notes that the performance of these two styles“ did not differ much during the economic downturns ”. At least so far, as Fong notes, “the return on stocks this time has been extremely high.”
WHAT IS THE REASON FOR STRONG VALUE?
According to strategist Schroders, styles with high dividend yields and low volatility since the beginning of the year have shown high profitability, consistent with previous declines. However, unlike previous slowdowns, “The discrepancy between the growth rates and the value of the shares was impressive. ».
In fact, he notes that “the excess of stock yields over stock growth this year is the third largest since the mid-1970s.” According to him, this is due to two factors:
– First of all, she was helped by “extraordinary” « profitability of energy reserves“Because they are usually classified as values.
Second, in contrast to previous declines, when bond yields fell, this time treasury bond yields rose. « rising yields on US government bonds. affected areas of market growth, such as technological sectorwhich are more sensitive to rising loan costs, ”says Fong. He explains that these companies “generate most of their profits in the future, so these future cash flows are discounted at a higher interest rate.”
In times like today, when bond yields are rising, value is usually “one of the most positively correlated stock styles” with this rise. And he predicts that in the future, assuming a repetition of recent history, “… value will be the most positively correlated stock style.”if real profitability continues to rise, valuable stocks may continue to rise. than the growth of stocks in this environment.
And the expert concludes that if at some point the world falls into recession and bond yields fall, the analysis shows that “emerging stocks and more cyclical styles may start working well again.”