The FAANGs – Facebook, Apple, Amazon, Netflix and Google – have seemed unstoppable for most of 2020. By September, Apple was worth more than the entire Russell 2000 index of small-cap stocks.
Now investors have suddenly reversed course, with the Russell 2000’s market capitalisation exceeding Apple by almost $500 billion.
Technology, quality and growth stocks came to be seen as bond-like safety stocks in 2020’s chaotic environment, as investors steered clear of value and small-cap stocks. Positive news on the Covid-19 vaccine front has changed all that: FAANG-like stocks are now underperforming as investors pile into under-owned value stocks.
Does the rotation have legs? Yes, according to Bank of America's (Bofa) latest fund manager survey, which finds a strong expectation that value and small-cap stocks will outperform. Sceptics might counter that Bofa's survey is best viewed in a contrarian light and that huge moves have already taken place. Barclays notes that the recent rotation out of growth and into value was the most violent two-day move since October 2008.
Barclays’ vaccine beneficiaries basket, which consists of stocks whose business models were hurt by health restrictions, soared 18 per cent on one day alone.
Still, multi-year trends are rarely reversed within days. Barclays says its conversations with clients reveal most did not participate in the rotation and are thus worried it will continue. That suggests the rotation has legs, says Barclays, with under-owned value stocks gradually reclaiming lost ground.
