Wealth managers hit as growth stocks suffer

The UK’s largest wealth managers have suffered a sharp reversal in portfolio performance this year as the economic environment hurt growth-oriented strategies and revived the fortunes of value stocks.

According to a study by Asset Risk Consultants, which analyzed the returns of 300,000 strategies, many portfolios that were on the rise at the end of last year are now in the bottom quartile of performance and have been replaced in top of the ranking by former laggards. managed by 100 leading UK wealth managers.

Rising inflation and rising interest rates have created a difficult environment for growth stocks, the value of which is tied to the company’s future prospects. Investors who prefer stocks with attractive valuations relative to their fundamentals, such as dividends and cash flow, have prospered.

“Basically, if you were upstairs, chances are you’re downstairs now,” said Graham Harrison, chief executive of ARC. To thrive at the end of last year, managers had to focus on growth, which has since suffered heavy losses.

This change underscores how difficult it is for active investment strategies to perform well in all market environments, giving weight to industry analysts who argue for a balance between different styles.

ARC’s analysis, which revealed an unusual upheaval in performance in the three months to the end of March, comes as global markets suffered a period of painful selling. The S&P 500 has fallen 17% since January, but growth-oriented stocks have fared less well. The MSCI World Growth Index fell 20% from January to April, while the equivalent value index fell just 5%.

However, Harrison said the short, sharp period of growth losses has yet to erase the outperformance of these strategies in recent years. “The amount of ground they lost was not so much that it exceeded their previous long-term performance,” he said.

Some strategists argue that the importance of growth factors relative to value is exaggerated relative to the merits of individual companies. “A market rotation from growth stocks to value stocks won’t prevent companies from being disrupted,” said Chris Rossbach, chief investment officer at J Stern and Co.

Studying wealth management returns found they mirrored the fortunes of other fund managers. Several of the most popular investment vehicles among UK savers have been hit hard. Fundsmith, the flagship fund managed by Terry Smith, has seen its returns drop 17% since January, according to Morningstar. Over the same period, shares of Scottish Mortgage Investment Trust fell 42%.

Yet the two vehicles remain the most purchased investment funds and trusts by retail investors, according to data from investment platform Interactive Investor. Both managers have delivered healthy returns for investors over several years and urged their investors to focus on their long-term balance sheet.

Among wealth managers, Harrison said a sell-off would typically lead to an upheaval in performance as the fortunes of different managers diverged. This year, however, much of the industry has suffered together. “Turns out they were all pointing in the same direction,” he said.

“There were 10 years where the story of investing that worked was basically the same.” Harrison argued that market upheaval could be a long-term phenomenon and urged wealth management clients to ask their strategist “what they are doing to respond to this changing economic and geopolitical environment.”

Rossbach, however, said the change in preferences may be short-lived. “The rotation started in January and is continuing, but I expect it to reverse again as the fundamentals of the business materialize and inflation declines – because we will not have forever a global inflation of 8%.”

Dolores W. Simon