The latest Morningstar Market Barometer reveals how value, growth and blend stocks performed in the first month of 2021, an indifferent start to the year for world stock markets.
The Morningstar UK Index, which covers 317 stocks from £503 million in size to £110 billion, was up over 13% in November alone, driven by value shares, but eked out a gain of just 0.63% in December. The index lost ground at the start of this year, dipping by 0.83% as global markets struggled to build on 2020’s end-of-year rally.
While the end of 2020 saw a tentative recovery for value stocks, they lagged again at the start of the 2021. The weighted average performance of value stocks like Lloyds (LLOY) and Imperial Brands (IMB) slipped a modest 0.37%, while growth shares like AstraZeneca (AZN) and Ocado (OCDO) posted a gain of nearly 2%. Large blend companies such as credit rating agency Experian (EXPN), which combine characteristics of both growth and value stocks, fared worst of all large-cap categories.
Within these categories, airplane engine maker Rolls Royce (RR) and cruise giant Carnival (CCL) were the worst performing of the large value stocks as continued travel restrictions and new Covid-19 variants troubled investors. Oil giants BP (BP.) and Royal Dutch Shell (RDSB) were among the best performing shares in January as crude oil prices moved above $50 in anticipation of a global economic recovery at some point this year. The two stocks are rated as four and five stars by Morningstar analysts, which means they are trading below their fair value, following a dismal share price performance in 2020.
The best-performing large-cap growth stock was online grocer Ocado (OCDO), which gained another 20% as the UK went into lockdown again at the start of January; the stock's price more than doubled last year, but that leaves it overvalued, according to Morningstar analyst Ioannis Pontikis, despite the ongoing strength of Ocado’s online business. Silver miner Fresnillo (FRES) was the biggest faller in this category, shedding 12% as precious metals fell out of favour - although on the first day of February, the shares rose nearly 10% as silver got caught up in some speculative excitement related to the GameStop saga.
Weaker Economy Weighs on Smaller Companies
Mid and small caps tend to be more sensitive to the UK economy than large caps, so it’s logical that these categories fell furthest in a month when lockdown was reimposed and real worries remain about the domestic economic recovery. The mid-cap blend category saw falls for pub and restaurant group Whitbread (WTB), while airline easyJet (EZJ) was the worst performer in mid-cap growth as there appears to be no swift end in sight to the sector’s woes – rival Ryanair (RYA) forecast a loss of €1 billion this year in its latest results.
Moving down the cap scale, the slide in the gold price at the start of 2021 hurt miner Greatland Gold (GGP), an Australian focused company whose shares slumped 33% in January alone – still, long-term investors may not be too troubled as the shares are still up 665% since January 2020. Greatland’s monthly share price loss is the biggest among all small-caps, although small blend stock Cairn Energy (CNE) isn’t too far behind with a loss of 27% in January.
The gap between growth and value was so pronounced (in the UK and worldwide) that it’s worth looking at last year’s data in the light of January’s return:
Last year, small growth stocks in the index rose by nearly 40% but the small value stocks category lost 22%; the pattern was the same in the mid-cap space, where value stocks were down 10% and growth stocks surged 24%. The gap between the less was less pronounced among large-cap companies, but still large-cap value shed 12% while large-cap growth gained just under 10%.
So far this year small-cap growth stocks, the standout performer of 2020, are the biggest laggard, while small-cap value stocks, the worst performer last year, are so far holding their own with a gain of 0.78%.
