In a world turned upside down by the pandemic and flooded with cash, investors seem to be pouring money on some stocks with the worst balances.
“Imagine for a moment that a portfolio manager describes their investment process as follows: They focus exclusively on companies with deteriorating or questionable business opportunities and lots of debt. They continue to highlight their love for companies that make little use of invested capital and experience large sales during periods of stress, said Jonathan Golub, chief capital strategist at Credit Suisse, in a Tuesday conference.
Although it may sound farcical on the face, but Golub says this strategy would have achieved impressive gains since Pfizer Inc.
began the first to announce that the COVID-19 vaccine candidate had been shown to be very effective against the disease in November.
The subsequent wave of positive vaccine developments has driven investors into stocks in smaller and more indebted companies at the expense of companies with more robust economies, reflecting how stocks missed out on the early gains from the stock rally that followed March’s sharp jump in beginning. of the pandemic, now played catch-up, as the diagram below shows.
Even the energy industry has, under pressure from increased regulatory control, shown signs of bouncing back.
The exchanged trade with Energy Select Sector SPDR
has increased by 17.5% and exceeds the gain in the broader S&P 500 benchmark by 3.9%
since the beginning of the year.
The aversion to collateral has also been reflected in corporate credit markets.
Below investment class with the lowest credit rating has had strong gains in January and opened for issuance of even the most volatile bonds.
The yield for a basket of corporate bonds that were underinvestment class was the lowest on record and traded at 4.12% on Tuesday, down from their March peak of 11.38%. Bond prices are moving in the opposite direction of interest rates.