John Bennett, Director of European Equities, explains why he believes value stocks could dominate the ongoing tug-of-war with growth stocks in 2022 and discusses why it is important for investors to stay the course.

Key Takeaways

• European equities will continue to be influenced by the ongoing debate around inflation and the closely associated shape of the bond yield curve.
• After a long period of outperformance of growth stocks, we are starting to see signs that value stocks could dominate market returns in 2022.
• Equity investors should be prepared for 10-20% drawdowns in their investments as we believe that this is part and parcel of investing in equities.

Inflation Expand

The rate at which the prices of goods and services rise in an economy. Transitory inflation is a temporary increase in prices across the board which is followed by prices returning to pre-inflation levels.

Growth stocks Expand

Shares of a company which generally show above-average earnings and that are expected to grow at a rate significantly above the average growth for the market.

Value stocks Expand

Shares of a company that appear to trade at a lower price relative to the company’s fundamentals, such as dividends, earnings, or sales.

Yield curve Expand

A graph that plots the yields of similar quality bonds against their maturities. In a normal/upward sloping yield curve, longer maturity bond yields are higher than short-term bond yields. A yield curve can signal market expectations about a country’s economic direction.