Explore how concentrated market trends and valuation gaps are shaping investment strategies in 2024
In an article by Wealth Professional and produced in partnership with Canada Life Investment Management, the strong double-digit returns in US equities during the first half of 2024 are discussed, along with concerns about the dominance of a few mega-cap stocks driving these gains.
Despite a slowdown in Canadian and international markets in the second quarter, equities overall have performed robustly.
Colin Ramkissoon, vice president of US and International Equities at Beutel, Goodman & Company, highlighted the unprecedented concentration in a small group of stocks, often referred to as the
‘Magnificent 7,’ which significantly contributed to the market’s returns.
Ramkissoon noted that without these stocks, the S&P 500 would have posted a negative return in the second quarter.
He pointed out that the top 10 stocks in the S&P 500 currently account for about 35 percent of the index, a level of concentration even higher than during the 2000 tech boom. “Historically, such trends do not sustain over long periods and tend to reverse, as seen in past market cycles,” Ramkissoon said.
Ramkissoon also addressed the persistent valuation gap between growth and value stocks, with the gap currently in the 90th percentile over the last 20 years.
He remarked, “Growth is expensive, but value is very cheap. As value managers, this matters a lot to us. We don’t necessarily need both gaps to close, just one returning to its normalized state over time would work well for us.”
He emphasized Beutel Goodman’s investment philosophy, which focuses on fundamental value investing with a high-quality bias, avoiding the latest market trends.
Ramkissoon also pointed out opportunities in the consumer staples and healthcare sectors, particularly in companies with strong fundamentals that have not participated in the recent rally.
Beutel Goodman’s long-term investment approach and commitment to high-quality businesses have allowed them to navigate various economic cycles. This strategy has led them to maintain a long-term overweight in equities due to their relative attractiveness compared to fixed income.
This article is part of an ongoing series highlighting Canada Life’s investment strategies with global partners.
