At Dana, we were pleased to end 2020 with some positive recognition, making Pensions & Investments’ list of best places to work for the ninth straight year. We celebrate that news, and are sharing it with our clients, for a simple reason: Culture matters.
In our view, a positive work culture doesn’t just benefit employees within a company. It also translates into a better client experience. This is likely true for any industry, but we believe it’s particularly important to asset management.
As 2021 kicks off, we wanted to share a few blog posts that could help you and your clients navigate the coming year. These were among our most read blogs of 2020, but they continue to be relevant today.
The first reflects on the extreme concentration risk within the S&P 500 index. We believe this is an issue that will bear watching in 2021. The second offers several stats aimed at keeping clients invested through a bear market. We hope it provides a timeless reference guide for any client you have who may have trouble staying the course when volatility strikes. The third offers perspective on the historical divergence between growth and value stocks in recent years, which remains a topical issue.
If there were ever a year to have a reflective conversation with clients, 2020 is it. From the virus, to market volatility to election uncertainty, the year has been filled with tensions. The end of the year provides a natural opportunity to reflect on those issues and make both a portfolio - and a client relationship - stronger.
If you’re an advisor going through year-end meetings with clients, we wanted to provide a few questions, suggestions and resources that may help your clients reflect on 2020 and stimulate deeper conversations. We know the vast majority of advisors will cover these issues in some shape or fashion, and have the pulse on their own clients more than anyone. But given how unusual 2020 has been, it never hurts to think of new ways to ask reflective questions.
In the spirit of sharing, here are a few items that may help you and your client reflect on a year of upheaval. We hope you find them useful heading into the new year:
Value stocks have quietly made a bit of a comeback in recent weeks, due in part to positive news on coronavirus vaccines, which could hold the key to opening the economy and helping many of the cyclical businesses in value indices. If this is the sign of a new turn for value, it was a long time coming.
The charts below offer perspective on just how wide the gulf between value and growth stocks has become. While we won’t try to predict whether a recent bounce by value stocks – the Russell 3000 Value Index outperformed the Russell 3000 Growth by more than 600 basis points the week ending 11/13 – we believe the wide delta in performance and valuation suggests an attractive entry point for value stocks, and a potentially long run for the investment style when it returns to favor.
In the past two weeks, investors got a lot more clarity on two of the largest clouds hanging over the market: the U.S. election and the coronavirus.
We now know who the next president is, and have a better idea (Georgia’s Senate election notwithstanding) of what the balance of power will look like in Washington D.C. And news that Pfizer’s coronavirus vaccine has shown a high success rate offers hope that we may be on the path toward addressing the coronavirus pandemic and normalizing the economy, even if current infection spread is alarming.
In this brief Q&A, Dana portfolio managers Joseph Veranth and David Weinstein reflect on what the election and vaccine could mean for markets going forward
Editor’s note: Our industrial sector outlook is part of a regular series sharing our views on various sectors with advisors and consultants. It’s part of our efforts to increase communication with investors at a time of economic and market uncertainty. While the sector outlooks provide a short overview of our thinking, we invite you to contact us if you are interested in a deeper discussion.
The economic fallout from the coronavirus has created an undeniable rough patch for the industrial sector. But there are bright spots beneath the darker clouds. We see investment opportunity in a few companies with innovative businesses using technology to improve manufacturing in other industries. We also see potential in “self-help” stories – management teams who are using efficiencies to improve the bottom line even as top-line growth slows.
We share these bright spots, some of the sector headwinds, and how we are navigating this economic environment in our industrial sector outlook.
Large cap stocks have outperformed small caps since the pandemic, but smaller stocks have begun to close that gap in recent weeks. It’s still early, but if investors stay patient, we believe small caps could be poised to continue to outperform in the coming quarters.
This blog post explores what was behind small cap underperformance in prior months, and why smaller stocks may outperform going forward, particularly when we receive clearer indicators of an economic rebound.
In Initial Months of Pandemic, Mega Caps Enjoyed Mega Dominance
Large caps’ outperformance over small caps in the spring and summer was due largely to the very largest stocks in the indices, a trend we noted in prior blogs. Many of the largest companies by market cap are tech stocks, and their revenue streams were naturally resistant to the pandemic and a stay-at-home lifestyle. Individuals still need Microsoft to work from home, for example, and relied on Amazon for delivery more than ever before.
Mergers and Acquisitions (M&A) activity among asset management firms is creating some investment behemoths. As these businesses scale up, we hope their clients are asking a critical question: What’s in it for me?
The consolidation wave running through the industry continued this month, with Morgan Stanley announcing it will acquire Eaton Vance, and Trian taking stakes in two large asset managers with the hopes they will merge. The announcements follow several other mega-deals in the past few years.
Too often, the touted benefits of these mergers seem focused on two factors: size and scale. But does bigger mean better for the client? As a small investment boutique, we admit we approach this argument with our own bias, but we see a few reasons clients may not benefit when their investment partners merge.
The presidential race may be polarizing, but both sides can agree on one thing: It at least has been compelling. The unexpected twists and turns over the past month have everyone anxiously awaiting November.
We’re anxious too. But as investors, we don’t just think about who we want to win. We try to think about what could happen in a range of different – and unexpected – outcomes. In this brief Q&A, we look at some of the factors investors should consider before November. The views are not a wish list of a particular election outcome or an endorsement of a party or candidate, just straight-forward things that advisors and other investors should think about:
What is the base case markets are pricing in about elections right now?
Markets, like polls, are predicting a win for Joe Biden. The general view is that he would be less business-friendly and that this could ultimately weigh on corporate profits. However, it’s likely that Republicans could still control the Senate.
It’s generally believed Republicans will pick up a Senate seat in Alabama. If that happens, Democrats would need to flip three seats to get to 50/50. The most likely are Maine, North Carolina, Iowa, Colorado and Arizona. We believe the market is currently hanging its hat on a Biden win, but that flipping three of those five would be a tall order.
Stocks recovered some ground last week, but September was the roughest month for U.S. equities since stocks began rebounding from bear market territory in late March. Below are a few quick takeaways on the September swoon, what may lie ahead, and how we are investing: