Was yesterday’s vaccine bounce the start of a Santa rally for value stocks?

Global stock markets bounced yesterday on the news that the first set of results from Pfizer’s phase three vaccine trial were better than expected, with a 90% success rate.

With light finally at the end of the COVID tunnel, investors around the world took part in a ‘dash for trash’, putting money into the likes of travel and leisure firms which have been hit hardest by the pandemic.

Short-lived bounce or sustained value rally?

Commenting on the bounce, Darius McDermott, managing director of FundCalibre, said: “In the UK we’ve seen the shares of Carnival and Easyjet was up more than 35% and one of the biggest risers, SSP Group, which operates food and beverages at travel locations, was up more than 50% in a day. Leisure has also done better, with the likes of Cineworld up 40%, while banks were up 10%.

“It was a good day for value – not just in the UK but also around the globe. The million dollar question now is whether this value rally will continue or if it will be short-lived. If the vaccine news flow remains positive, which I think it will, value could do well now until the end of the year.”

Four more shots on goal before year end

Speaking to FundCalibre for a podcast last week, Giles Rothbarth, co-manager of BlackRock European Dynamic, said: “There are more than one hundred vaccines currently in development. Of those hundred, we’re really focused on five because we are confident that should they be successful, they’d have a meaningful volume rollout. We’re expecting all five to have phase three readouts – the final stage – before Christmas.

“So I guess one way to think about this is that we’ve got five shots on goal between now and then, each with an 80% chance of hitting the back of the net. So we’ve got to be cautiously optimistic that we could well be moving into the final phase for the market of this COVID downturn.”

Four funds for a vaccine rally

Value funds have had a torrid time over the past decade, as growth strategies have enjoyed the tailwind of a low growth, low interest rate world. But these funds will also have benefitted the most from the rally this week, being already invested in out-of-favour companies.

Here are four that could enjoy a longer run into 2021:

1. Fidelity Special Values

Run by contrarian manager Alex Wright, this trust has holdings in companies like Meggitt, in the aerospace after-market business and C&C – a drinks business that has been very badly impacted by COVID, but which is still making money. Gearing on the trust was also in double-digits.

2. JOHCM Global Opportunities

Manager Ben Leyland has added a number of companies to the portfolio in recent months that fit into the category of ‘Covid-disrupted structural winners’. “This is where we see by far the most exciting value currently,” he said. “These areas have been completely left behind in the frenzy to chase the momentum trade in short-term beneficiaries of lockdown.”

3. Ninety One Global Special Situations

This is a high conviction, contrarian value fund focused on buying companies that are cheap and out of favour. Managers Steve Woolley and Alessandro Dicorrado start by screening for cheap, out of favour stocks which have fallen 50% relative to their index. “People are worried about being the first to invest in certain companies – as value investors we don’t mind being first,” they said.

4. Schroder Recovery

A patient and deep value-driven portfolio, this recovery fund has been run by the same managers Nick Kirrage and Kevin Murphy since 2006, with a continuity of process and a very consistent track record. They invest in companies that have suffered a severe business or price setback, but where the long term prospects are good.