A number of equity managers are finding that value style of stock-picking is “no longer winning”, according to research carried out by Fitch Ratings.
The ratings agency warns managers following growth and value strategies need to amend value stock picking approaches as in the current environment, growth is becoming increasingly scarce.
“Throughout most of the 2000s, valuation was the predominant criterion for stock selection. With lower growth, increased global competition and innovation, a companies’ strategic analysis is becoming paramount,” the agency reports.
“Valuation is used to identify entry and exit points and to adjust positions accordingly. As a high quality company with a fair price stock is now a preferable investment to the cheap stock of a fair company, a “quality at fair price” style seems to be emerging.”
Given the current economic conditions, past stock-picking factors have given way to the “new normal”, namely; the sovereign crisis; globalisation; disruptive innovation and mass trading, according to Fitch.
It adds that thematic, sector and geographical perspectives need to be consequently developed, requiring a new mindset or further hires.