Growth investors invest in growth stories. Therefore, when the growth story of financial innovation dropped from favor, the growth investor had a choice – stick with the losing position or seek out alternative growth opportunities.
The chart (click to enlarge) to your left highlights the performance change that taken place over the past several months (since the credit squeeze took center stage) for two growth stories: financial innovation and technology.
We all know the individual stories each sector has experienced. What may have gone unnoticed by some, however, is the shift forced upon growth investors as many such oriented investors abandon the financial innovation growth story and, out of mandated necessity, seek out other, more reliable growth opportunities. In other words, out of Financials (XLF and the broker/dealers, IAI) and into Tech and Telecom (NYSEARCA:XLK).
Investment Strategy Implications
With earnings season upon us and as the macro story on credit problems and the Fed’s rate action fades from the front page (and most investors’ minds), the focus will now shift to the micro stories of individual economic sectors and investment styles. One aspect of this shift is the growth part of the style equation.
There are several economic reasons to overweight Tech and Telecom, especially the big cap issues. Global growth and a weak US dollar are two. Then there is the above noted style factors: A pattern that is likely to remain intact, particularly through the upcoming earnings season.