HEAD-TO-HEAD: Morgan Stanley versus T Rowe Price

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Isaac Poole, Oreana Portfolio Advisory Service

Introduction

Value investors have been encouraged this year. They believe that a post-pandemic economic recovery and incipient inflation will prompt central banks to hike interest rates and traders to mark government bond yields higher – taking the wind out of the decade-long growth stock rally and forcing investors to  appreciate quality and respect valuations.

However, the markets seem unconvinced. For instance, the Russell 1000 Value index is up 18.42% for the first seven months of the year, only slightly ahead of the Russell 1000 Growth Index which is up 17.58%, according to FE Fundinfo data. That’s hardly a forthright endorsement of the value camp’s cause.

In fact, US equities resumed their rally in June despite the Federal Reserve’s more aggressive monetary policy stance. The Fed maintained its benchmark rates and pace of bond-buying, but the biggest shift was a more aggressive tilt to its interest rate forecasts.

Large-cap growth and quality stocks gained substantially, recouping some of their year-to-date underperformance against value stocks, with IT stocks outpacing most other sectors. Consumer discretionary, communication services and health care stocks also outperformed the broader market while the materials, financials, and utilities posted negative returns

Meanwhile, US Treasury yields have fallen as inflations expectations have declined. There are clearly growing concerns that the spreading of the Delta variant of coronavirus will mean that lockdowns will not be lifted as early as previously anticipated and hence that normal economic activity will take a while to resume.

Against this background, FSA asked Isaac Poole, global chief investment officer at Oreana Portfolio Advisory Service, to select two US equity products for comparison: the Morgan Stanley US Growth Fund and the T Rowe Price US Large Cap Growth Equity Fund.

Source: FE Fundinfo, Morningstar. (Data in US dollars, 29 July 2021)

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