The Novel Coronavirus Pandemic may be characterised as a “Black Swan” type event that has both exacerbated and perpetuated the outperformance of growth stocks. While historically this is no new occurrence, the degree to which value stocks have underperformed has never been so disjoint.
Early November saw the announcement of a 90% efficacious vaccine jointly developed by US drugmaker Pfizer and German biotech firm BioNTech. Globally, markets rallied hard leaving the significant drawdown a memory of the distant past. Importantly there was also a sizeable “Quant Quake” which saw the immediate re-emergence of unpopular value and cyclical stocks. While an efficacy greater than the common Influenza vaccine was the general consensus, the result was much above market expectations with most commentators anticipating a 60% rate of effectiveness. Sectors and economies previously stagnant begin to open as populations move towards a COVID normal with eventual herd immunity. The Vanguard Global Value Equity Active ETF (VVLU) provides investors exposure to international equities through the lens of a value bias.
However in light of recent events, digitalisation as an unequal structural trend has only accelerated. The Montaka Global Extension Fund (MKAX) provides access to a selection of international companies, with a full appreciation for the durability and recurrence of cash flows and real options for future business lines (continued in report). In particular, these businesses possess a privileged store of data which may create a large opportunity for such incumbents to leverage and expand their competitive advantage. Artificial intelligence, cybersecurity and analytics are all forms of valuable add-ons to enterprise customers. The protracted low interest rate environment would also suggest a higher present value of future cash flows from current and alternate revenues. We suggest that no one style is objectively better than the other, but rather, may compliment the reciprocal in a portfolio given an active management style and focus on true undervalued business qualities.
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