Equity markets have responded negatively since the emergence of the new Omicron variant of the COVID-19 virus. The anticipated response of global governments to the spread of this new variant may cause both consumer and producer activity to decrease in the short term. This development has forced investors to re-consider their long equity positions heading into year end. The short-term volatility in stocks presents an opportunity for investors if the longer-term recovery trends remain in place (i.e. increased consumer activity, resolution of labour and supply chain dislocations).
At this time last year, investors were significantly underweight value stocks. The pandemic forced low interest rate policies from central banks and accelerated structural trends, such as remote working. These factors contributed to growth stocks being perceived as relatively safe positions. The news that a COVID vaccine would soon be widely available triggered months of relative outperformance in the value trade1, as value stocks were seen as a way to play the recovery of economic activity.
Investors are once again underweight value. The preference for high quality growth stocks has driven the price of their earnings higher in recent years (see Figure 1). While investors have benefitted from higher return on equity in growth stocks (see Figure 2), we fear that these trends may slow or reverse in 2022.
The catalyst for a reversal could be if central banks pursue a normalising of interest rate policy, driving long-term interest rates higher. This is already being signalled by the US Federal Reserve, which recently announced a potential acceleration in the reduction of asset purchases and planned rate hikes to combat the strong inflation statistics.
As investors prepare for the end 2021, with an eye toward positioning for Q1 2022, it would be prudent to weigh both the short-term risks of Omicron volatility and the longer-term trend of economic recovery. If the long-term recovery is not significantly interrupted, then the short-term volatility presents a significant opportunity for investors to benefit from reducing the underweight in value stocks and positioning for upside potential. We would recommend investors use quality to their advantage, by considering a selective approach to playing value stocks.
Investors using value strategies to take advantage of cheap stocks need protect their portfolios against stocks that are cheap for a reason. Value Exposure Select strategies can allow investors to access strong value factor exposure, while seeking to avoid value traps by using a light quality touch.
SPDR® ETFs has always offered a suite of Value Exposure Select strategies in both US and European exposures. We have expanded the range to include a global version of this exposure through the SPDR® MSCI World Value UCITS ETF, which tracks the MSCI World Value Exposure Select Index. To learn more about the ETF, and to view full performance history, please visit the fund page.
1 The SPDR® MSCI World Value UCITS ETF outperformed the MSCI World Index by approximately 7.2% in Q1 2021. Source: FactSet as of 1 January 2021 to 31 March 2021.
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For Investors in Austria: The offering of SPDR ETFs by the Company has been notified to the Financial Markets Authority (FMA) in accordance with section 139 of the Austrian Investment Funds Act. Prospective investors may obtain the current sales Prospectus, the articles of incorporation, the KIID as well as the latest annual and semi-annual report free of charge from State Street Global Advisors Europe Limited, Branch in Germany, Brienner Strasse 59, D-80333 Munich. T: +49 (0)89-55878-400.F: +49 (0)89-55878-440.
For Investors in Finland: The offering of funds by the Companies has been notified to the Financial Supervision Authority in accordance with Section 127 of the Act on Common Funds (29.1.1999/48) and by virtue of confirmation from the Financial Supervision Authority the Companies may publicly distribute their Shares in Finland. Certain information and documents that the Companies must publish in Ireland pursuant to applicable Irish law are translated into Finnish and are available for Finnish investors by contacting State Street Custodial Services (Ireland) Limited, 78 Sir John Rogerson’s Quay, Dublin 2, Ireland.
For Investors in France: This document does not constitute an offer or request to purchase shares in the Company. Any subscription for shares shall be made in accordance with the terms and conditions specified in the complete Prospectus, the KIID, the addenda as well as the Company Supplements. These documents are available from the Company centralizing correspondent: State Street Banque S.A., Coeur Défense - Tour A - La Défense 4 33e étage 100, Esplanade du Général de Gaulle 92 931 Paris La Défense cedex France or on the French part of the site ssga.com/etfs. The Company is an undertaking for collective investment in transferable securities (UCITS) governed by Irish law and accredited by the Central Bank of Ireland as a UCITS in accordance with European Regulations. European Directive no. 2014/91/EU dated 23 July 2014 on UCITS, as amended, established common rules pursuant to the cross-border marketing of UCITS with which they duly comply. This common base does not exclude differentiated implementation. This is why a European UCITS can be sold in France even though its activity does not comply with rules identical to those governing the approval of this type of product in France.The offering of these compartments has been notified to the Autorité des Marchés Financiers (AMF) in accordance with article L214-2-2 of the French Monetary and Financial Code.
For Investors in Germany: The offering of SPDR ETFs by the Companies has been notified to the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) in accordance with section 312 of the German Investment Act. Prospective investors may obtain the current sales Prospectuses, the articles of incorporation, the KIIDs as well as the latest annual and semi-annual report free of charge from State Street Global Advisors Europe Limited, Branch in Germany, Brienner Strasse 59, D-80333 Munich. Telephone: +49 (0)89-55878-400. Facsimile: +49 (0)89-55878-440.
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Switzerland: State Street Global Advisors AG, Beethovenstr. 19, CH-8027 Zurich. Registered with the Register of Commerce Zurich CHE-105.078.458. T: +41 (0)44 245 70 00. F: +41 (0)44 245 70 16.
United Kingdom: The Funds have been registered for distribution in the UK pursuant to the UK’s temporary permissions regime under regulation 62 of the Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019. The Funds are directed at 'professional clients' in the UK (as defined in rules made under the Financial Services and Markets Act 2000) who are deemed both knowledgeable and experienced in matters relating to investments. The products and services to which this communication relates are only available to such persons and persons of any other description should not rely on this communication. Many of the protections provided by the UK regulatory system do not apply to the operation of the Funds, and compensation will not be available under the UK Financial Services Compensation Scheme.
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