How growth strategies can be a barometer of the market mood

Wednesday, May 01 2019 by
How growth strategies can be a barometer of the market mood

Share prices have been in recovery mode over the past four months. After a sharp slide on the UK market late last year, the bulls appear to be back in charge in 2019. When it comes to investment styles, some of the big early winners from this kind of change in sentiment are the growth strategies - and we’re starting to see the signs of that.

The bulls fend off the bears… for now

Last autumn’s market dip had many of us wondering whether time was officially up for the long running momentum streak. But while the downswing was dramatic, the mood has turned much more upbeat in 2019.

The large-cap FTSE 100 index, for instance, is up by 10 percent since January. The FTSE 250 and the growth-focused AIM All-Share are both up by 13 percent. Setting the tone for all this - on the other side of the Atlantic - the US S&P 500 is once again troubling the record books as it stretches to new all-time highs.

Among the top UK performers over the past six months, the biggest gains across the FTSE 350 have been in stocks like Ocado, Micro Focus International and Greggs. On main AIM board, the big winners have been the likes of ReNeuron and Earthport (on a takeover approach from Visa). And on the AIM 100, the leaders have been AB Dynamics and the relatively newly-listed Codemasters.

Swings in sentiment

Late last year it was clear that the negative market momentum was causing problems for some of the most popular growth stock strategies. When confidence wanes, growth stocks are often the first to sell-off as investors opt for safer territory. So in the final three months of the year, growth and momentum strategies were among the biggest losers.

An additional challenge for growth strategies in bearish conditions is that they often struggle to find buying options. Typically, most of these approaches will look for some variation of earnings growth, quality and price strength in the shares they target. So in falling markets, negative momentum can result in very few shares passing their rules.

So it was pretty bleak for growth investors for a time in early 2019. Yet one of the boons of a pull back in…

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5 Comments on this Article show/hide all

iwright7 1st May 1 of 5

Ben, Yet another excellent article that has alerted me to the attractions of Scientific Digital Imaging (LON:SDI). Great Quality numbers/ratios (Q is 93) and because of 3 months strong upward momentum to a 52 Wk High a cracking QM score of 98. The SR is pretty good too @ 88. Lots of small complimentary acquisitions are accelerating growth, so the PEG is just 0.5

I see that last years trading update was 27th April, so a new (and hopefully positive trading update) is imminent. All enough to make me buy an initial holding @ 57.5p this afternoon.

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Jack Corsellis 2nd May 2 of 5

Good stuff Ben. I think you could also use other 'higher risk' assets like Bitcoin to determine investor sentiment. The selloff in Bitcoin was potentially an early indication the tide was turning last year. JC

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Steves cups 2nd May 3 of 5

Very helpful as I am struggling to find replacements at good value with decent prospects.
I had never heard of Pelatro (LON:PTRO) until the founders brother ditched his entire holding and it showed up on the day losers board
The only other good value is Belvoir Lettings (LON:BLV) and i have that too

Keep looking I guess


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Gromley 2nd May 4 of 5

In reply to post #473381

Good stuff Ben. I think you could also use other 'higher risk' assets like Bitcoin to determine investor sentiment. The selloff in Bitcoin was potentially an early indication the tide was turning last year. JC

Interesting observation JC.

I'm not sure that I would wholly agree, I think that a bubble like bitcoin (or crypto in general) is able to burst even in a bull market (although that's just 'a view' - I haven't got any data to substantiate it - others might?)

However it did set me to thinking that over the last few days (or perhaps months or so?) it seems to me that many "story stocks" - both those I would consider quality & those I would consider (umm) unproven - seem to have reignited.

Allied Minds (LON:ALM) , IQE (LON:IQE) , Learning Technologies (LON:LTG) , Water Intelligence (LON:WATR) , GAME Digital (LON:GMD) , Purplebricks (LON:PURP) , Sanderson (LON:SND) , Sopheon (LON:SPE) . To name but a few  (and as they are entirely off the top of my head then I may be mis-remembering and some of these may actually have gone down)

Is it only me, or does anyone else feel that we have seen some indiscriminate rises recently? Is this a signal of recovering confidence (which could be misplaced)?

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JohnEustace 2nd May 5 of 5

Tesla is up over 4% as I write after having announced a $2bn equity raise which makes me think the bulls still have some energy left in the tank. Or money left to throw away depending on your view.

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