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Value shares are a better way to bet on a Covid-19 vaccine than cyclical stocks, even though the latter have gained favor for capturing the trade, according to Goldman Sachs Group Inc.
Value shares beat their growth counterparts by more than 3 percentage points over the Aug. 22 to Sept. 8 period, when the chances of a vaccine available by the first quarter of 2021 jumped to about 70% from around 40%, Goldman strategists led by David Kostin wrote in a note Friday. Cyclical shares underperformed defensive ones, they said.
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Value stocks tend to have short-duration cash flows, so will outperform as rates rise, while cyclicals and defensives have similar durations on average, Goldman said, to explain the lack of correlation with vaccine odds.
“The consensus view of investors is cyclicals will outperform when a vaccine is identified,” the strategists wrote. “However, the correlation of returns with the prospects for a vaccine suggest value rather than cyclicals is the better tactical expression of this view.”
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