Value shares are done, we're back to growth: analyst

Investment expert says inflation won't rage out of control, but advises to get your money out of the ASX and send it to overseas stocks.

A set of scales with a bag of money balanced against a timer, indicating growth versus value shares

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The massive rotation to value shares is done and dusted and it's now time to return to the growth winners that carried 2020.

That's the opinion of Nucleus Wealth head of investments Damien Klassen, who revealed his team repositioned its portfolios earlier this month.

"We have… called time on the value trade," he said in a memo to clients. 

"The current inflation spike looks to be short term and will likely recede over the next 6 months."

Growth is back, baby

The Nucleus team has returned to the growth shares that served investors so well during the post-crash rally last year.

"We have made some substantial changes to reduce weight to the stocks we perceive will be the losers from the new environment: banks, resources and value stocks," said Klassen.

"The replacements are similar to the winners from 2020: quality growth — think profitable technology — and defensive."

The strategy is a classic "barbell portfolio" with growth shares at one end and interest-rate sensitive defensive stocks at the other.

By "quality" growth shares, Klassen clarified he meant "stocks that can grow considerably above-trend" that will look appealing in a low-growth world.

"If you were looking for maximum returns, you might buy 'junk' growth stocks — ones with little to no earnings which often perform best in this type of environment," he said.

"We look at our portfolios differently though. Risk is an important factor, and the junk growth stocks are far from cheap and have as much downside as they do upside."

Inflation now is not the same as the 1970s

Inflation ran out of control in the 1970s, causing grief for the entire global economy.

But Klassen said that the fundamental forces controlling prices and wages were entirely different now.

"The rules have changed since then. We looked at technology being inherently deflationary. Net result: a financial system overengineered to prevent inflation."

The rotation back to growth now also means investors should look at moving their money from the ASX to overseas shares.

"Australian equities have been a good source of investment performance in recent months. Now, they are facing a higher risk of reversal," said Klassen.

"It is time to use the high prices here to switch to international equities. We are building the defensive side of the portfolio up, changing out of value winners like resources, banks and cyclical industrials. A more aggressive switch into quality/growth is ahead if we see the opportunity developing."

Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Investing Strategies

A mature-aged couple high-five each other as they celebrate a financial win and early retirement
Dividend Investing

5 top ASX dividend shares to buy right now

Analysts think income investors should be loading up on these shares.

Read more »

Two adults and a child look happy as they walk through airport with child sitting on suitcase.
Dividend Investing

Will Qantas shares pay a dividend in 2024?

Will the dividends return this year? Let's find out.

Read more »

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
Dividend Investing

2 market-leading ASX dividend stocks to buy in April

Analysts have put buy ratings on these market-leaders.

Read more »

Father in the ocean with his daughters, symbolising passive income.
Dividend Investing

I'd spend $8k on these ASX 200 shares today to target a $6,102 annual passive income

I believe these ASX 200 shares will continue rewarding passive income investors for years to come.

Read more »

Man holding Australian dollar notes, symbolising dividends.
ETFs

Want the latest dividend from the Vanguard Australia Shares ETF (VAS)? Here's what you have to do

If you want to bag the latest VAS dividend, here's what you need to do.

Read more »

A smiling businessman in the city looks at his phone and punches the air in celebration of good news.
Dividend Investing

Investing for passive income? Keep any eye out for that boosted Telstra dividend today!

If you own Telstra shares, keep an eye out for that juicy dividend payout today.

Read more »

Couple at an airport waiting for their flight.
Cheap Shares

Is Qantas a bargain ASX 200 stock today?

Analysts at Goldman Sachs think the Flying Kangaroo could be dirt cheap.

Read more »

Person holding a blue chip.
Blue Chip Shares

2 ASX blue-chip shares I'd buy with $3,000 right now

These are large businesses with compelling futures.

Read more »