{"id":292,"date":"2019-01-13T05:09:54","date_gmt":"2019-01-13T05:09:54","guid":{"rendered":"http:\/\/forefrontnews.cn\/finance2news\/?p=292"},"modified":"2019-01-13T05:09:54","modified_gmt":"2019-01-13T05:09:54","slug":"do-interest-rate-hikes-call-for-a-change-of-investing-strategy","status":"publish","type":"post","link":"http:\/\/forefrontnews.cn\/?p=292","title":{"rendered":"Do interest rate hikes call for a change of investing strategy?\u00a0"},"content":{"rendered":"

Buying shares when they look cheap in the hope they\u2019ll be worth more later may seem like one of the most basic tenets of investing.<\/p>\n

But this strategy, known as value investing, isn\u2019t the only way to make money \u2013 and for several years it certainly hasn\u2019t been the most successful.<\/p>\n

Since the financial crisis, fund managers who have instead favoured a growth strategy \u2013 hunting for companies with rapidly rising sales, earnings, margin or all of those, no matter the cost \u2013 have outperformed.\u00a0<\/p>\n

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UK value stocks \u2013 which include the likes of HSBC, BP and Vodafone, according to the MSCI UK Value Index \u2013 have begun to outperform their growth peers.<\/p>\n

But why are value stocks beginning to outperform their growth peers, and will it stay that way? Niall O\u2019Connor, deputy manager of the Brooks Macdonald Defensive Capital Fund, believes the real reason that value strategies are picking up goes right to the heart of monetary policy.<\/p>\n

\u2018Since the financial crisis, we\u2019ve had a vast amount of quantitative easing,\u2019 he says.<\/p>\n

This is where central banks, such as the Bank of England, release more money into the economy by buying back \u2018safe\u2019 assets such as government bonds from investors.<\/p>\n

This has the effect of pushing investors into riskier assets such as shares, and more specifically, growth companies.<\/p>\n

The businesses can afford to burn through money to ramp up their size when interest rates are low and they can borrow easily, and investors reap the rewards for taking a chance on these upcoming firms.<\/p>\n

O\u2019Connor says: \u2018You\u2019ve got electric scooter companies that are supposedly worth billions of dollars, and all they\u2019re doing is supplying electric scooters and providing an app.<\/p>\n

\u2018It\u2019s a great concept but I just don\u2019t see the value in them,\u2019 he warns. \u2018Tesla has a value greater than General Motors and Ford. The products might be good but the valuations are crazy.\u2019<\/p>\n

He thinks the golden times for these types of companies could be drawing to a close.<\/p>\n

Now that quantitative easing has come to an end, and interest rates have begun to rise, it\u2019s worth keeping cash in the bank, he says.<\/p>\n

Investors no longer need to rush to risky companies to make their money, meaning growth companies\u2019 prices should start to fall.<\/p>\n

O\u2019Connor explains: \u2018I no longer need to invest in things like Tesla to get a return. Why would I want to take that risk when I can get risk-free money?\u2019<\/p>\n","protected":false},"excerpt":{"rendered":"

Buying shares when they look cheap in the hope they\u2019ll be worth more later may seem like one of the most basic tenets of investing. But this strategy, known as… <\/p>\n","protected":false},"author":1,"featured_media":293,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[257],"tags":[124,123,125,126,127],"views":69,"_links":{"self":[{"href":"http:\/\/forefrontnews.cn\/index.php?rest_route=\/wp\/v2\/posts\/292"}],"collection":[{"href":"http:\/\/forefrontnews.cn\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/forefrontnews.cn\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/forefrontnews.cn\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/forefrontnews.cn\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=292"}],"version-history":[{"count":0,"href":"http:\/\/forefrontnews.cn\/index.php?rest_route=\/wp\/v2\/posts\/292\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/forefrontnews.cn\/index.php?rest_route=\/wp\/v2\/media\/293"}],"wp:attachment":[{"href":"http:\/\/forefrontnews.cn\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=292"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/forefrontnews.cn\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=292"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/forefrontnews.cn\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=292"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}