What Stocks Will Be the Big Winners Up Ahead? Why, Tech

The stock market is inching upward, but the tech juggernauts’ rocket flight continues unabated. And there’s going to be plenty more ahead, according to LPL Financial.

Although many investors have spread their bets more evenly this year, favoring more value over growth names, growth—read: tech—stocks retain the edge. Value indeed pulled ahead in the spring in terms of in-flows to exchange-traded funds (ETFs), but the preference for growth has come roaring back.

“The theme of 2021 has been rotation, rotation, rotation,” said LPL technical strategist Scott Brown in a research note. “But technology is the only sector to recently hit a 52-week relative high, and we believe that sets up a favorable outlook heading into 2022.”

Certain value sectors are outpacing everything else, and the best performers are energy, up 50.6% this year, and financials, ahead 34.2%, according to Yardeni Research. Overall, though, the Russell 1000 growth index is far ahead of its value counterpart for 2021, 30.3% versus 23%. Look at the Nasdaq 100, which has the highest flying tech stocks and has gone up 27.2%. The returns are even more outstanding at the tech behemoths, such as Google-parent Alphabet’s 74.4% advance and Microsoft’s 56.7%.

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

After a blah September and a decent October, the November market has kept moving, however fitfully, north. Thanks largely to tech leadership, the S&P 500 hit its 66th all-time high Thursday, with the index poised to attain the largest amount of yearly records in history, behind only 1995’s showing. The big gainers helping lift stocks yesterday—the S&P 500 rose 0.34%—were electric vehicle (EV) hotshot Tesla and chip maker Nvidia, rising 0.68% and 8.25%, respectively.

With less Federal Reserve and government stimulus, many analysts forecast subdued gains for next year. Over the next six months, the S&P 500 should reach 5,200, estimates Mark Haefele, CIO at UBS Global Wealth Management. From Thursday’s close, that translates into an index increase of 10.5%.

So should investors tilt their allocations toward tech? Not necessarily, LPL’s Brown advises. “We believe quality growth and more cyclical value companies can both do well in the current environment and remain most negative on defensive sectors such as consumer staples and utilities that have traditionally underperformed during early-to-middle stages of the business cycle,” he wrote.

Giant Tech Stocks Primed for Another Slide, Says Sage

Welcome Big Tech Back to the Head of the Class

Tags: Alphabet, LPL Financial, Mark Haefele, Microsoft, Nasdaq 100, Nvidia, S&P 500, Scott Brown, tech stocks, Tesla, UBS, Yardeni

The European Union’s Sustainable Finance Disclosure Regulation (SFDR) has been enforced as law for a little over eight months, enough time for investors to get a feel for just how much the new environmental, social, and governance (ESG) disclosure rules are impacting their work.

The legislation, which applies to firms with 500 or more employees, was designed to combat greenwashing, a practice in which investment firms refer to themselves as “sustainable” despite the fact that until recently there was no consensus on what the words “sustainable” or “green” actually mean. The EU legislation is meant to fix this problem by creating a clear set of guidelines that must be met for a set of investments to be labeled as environmentally friendly. However, some see the new requirements as time-consuming and inefficient.

“It’s quite clear to me that the transparency agenda is a huge challenge and threat to incumbent investment managers,” said Joshua Kendall, head of responsible investment research and stewardship at asset manager Insight Investment. Kendall said he believes the legislation doesn’t differentiate enough between different types of asset classes or investment organizations, some of which can be harder to collect data for than others.

“If you look at what these KPIs [key performance indicators] are, they make relative sense on the corporate level,” he said. “But when you say ‘government portfolio’ and how you’re supposed to report from government, there’s basically only a couple of metrics which are required, and they are pretty useless.”

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

However, there are many who disagree with Kendall and believe the new legislation will be successful. In an op-ed in Foreign Policy Magazine, Michael Moran, chief markets officer and chief of risk and sustainability at Microshare, argued that the legislation will make a significant difference in the sustainability of global investments. He pointed to the law’s ability to affect nearly every firm that comes into contact with the EU as evidence of how significant its effect would be.

Op-Ed: Europe’s New ESG Rules Create an Opportunity for US Investors

Europe’s ‘Ambitious Plans’ for ESG Disclosure Rules

Europe’s Second Largest Pension to Divest From Fossil Fuels

This story has been updated to clarify Joshua Kendall’s position on ranking assets. It previously stated that “some see the requirement of ranking every single asset in their portfolios as time-consuming and inefficient,” which might have mischaracterized Kendall’s perspective. Insight Investment has created their own internal method for ranking ESG assets.

Tags: ESG, Europe, green, Greenwashing, Insight Investment, sustainable, Sustainable Financial Disclosure Regulation