A Bullish Outlook for Investing in the Cyclical Rotation
On Behind the Markets, a podcast brought to you by Jeremy Schwartz, WisdomTree’s Global Head of Research, we talk to market strategists, business executives and financial advisors about important trends in the financial markets.
In this episode, Jeremy talks to Savita Subramanian, Managing Director, Head of Environmental, Social & Governance (ESG) Research and U.S. Equity & Quantitative Strategy at BofA Global Research.
Listeners will hear about:
- Cyclical, value and small cap: The inflationary impulse and strong GDP growth favors staying invested in the cyclical, value and small-cap sectors of the market and avoiding the defensive sectors that perform better in slower growth environments.
- Growth remains crowded: The average mutual fund is 50% over-weight in Technology, Media and Telecommunications (TMT) stocks whereas cyclical value remain under-weight. Savita ties this to the average age of the money managers who have only seen growth stocks work and have yet to see a cycle where inflation matters.
- During some of the longer value cycles, you often see growth stocks resume leadership and that may be what happened in the last few weeks.
- Energy bull: Why Savita likes the energy sector on a valuation basis and how she squares that positioning with her role as Head of ESG Research, where many of the typical ESG stocks are expensive.
- Quality discounts: The underperformance of the quality factor year-to-date and how many high-quality stocks are trading at unique valuations compared to slower growing sectors.
- Summer shorts: How the Fed’s taper talk can create volatility for the markets over the summer and what types of stocks are candidates for shorting or under-weights.
- Dividend quintile 2: The best place Savita sees inflation-protected yield is in dividend-paying stocks.
- Her favorite quantitative research screen focuses on safe, high dividend stocks from ‘quintile 2’ while avoiding the very top decile of high dividend yields, as often they are value traps.
This was a great conversation. You can listen to the full conversation below:
Jeremy Schwartz has served as our Global Chief Investment Officer since November 2021 and leads WisdomTree’s investment strategy team in the construction of WisdomTree’s equity Indexes, quantitative active strategies and multi-asset Model Portfolios. Jeremy joined WisdomTree in May 2005 as a Senior Analyst, adding Deputy Director of Research to his responsibilities in February 2007. He served as Director of Research from October 2008 to October 2018 and as Global Head of Research from November 2018 to November 2021. Before joining WisdomTree, he was a head research assistant for Professor Jeremy Siegel and, in 2022, became his co-author on the sixth edition of the book Stocks for the Long Run. Jeremy is also co-author of the Financial Analysts Journal paper “What Happened to the Original Stocks in the S&P 500?” He received his B.S. in economics from The Wharton School of the University of Pennsylvania and hosts the Wharton Business Radio program Behind the Markets on SiriusXM 132. Jeremy is a member of the CFA Society of Philadelphia.