The rotation from growth into value has been one of the leading stories in financial markets since the end of 2020. This trending topic connects to nearly every aspect of equities right now: which stocks will benefit from a cyclical recovery, the fate of flashy headline tech stocks, inflation fears and higher interest rates. But it’s critical for investors to make the distinction between value as a sector and value as a factor.

 

Value as a sector A given sector within a benchmark can be classified as a growth sector or a value sector; a growth sector will have a higher-than-average earnings growth rate compared with other sectors or the economy in general. A sector like technology is considered growth because its future earnings are higher than, say, a financial sector. And in the current market, we’re seeing a rotation away from technology.

 

Value as a factor This simply means considering the stocks themselves, not necessarily the...

An asset that’s often misunderstood

While equity awards are a big component of compensation for pre-IPO companies, they’re also increasingly offered to a broader set of employees at dynamic publicly held companies. This trend can create significant opportunities for advisors to add value to a growing segment of clients — many of them younger and in need of long-term planning.

Our experience with employees receiving stock awards is that many of them don't understand the basics of this type of compensation. Even fewer understand the nuances. And that’s understandable since award programs can vary significantly from one company to another — and even between employees at the same company. 

Advisors can add value to their clients with equity compensation in three key ways:

As the U.S. continues its COVID-19 vaccination program, the Return to Normal Index measures human activity data relative to prepandemic levels. The index is constructed by our data scientists and fundamental analysts and tracks activities in the U.S. including travel, returning to work and school, brick-and-mortar shopping and eating out. By design, the index is focused on measuring components of daily life rather than economic indicators like GDP growth. The percentage level will move closer to 100 as daily life normalizes, and our analysts will update it on a regular basis.

By tracking measures of volatility, we can understand whether the equity market expects to see a high level of market action in response to the election. Expectations for volatility are elevated relative to the last 15 years — but they aren’t extreme. For investors, the smart move is to stay focused on long-term goals because decisions made in the heat of the moment can hurt future portfolio performance. A diversified portfolio can help dampen the impact of equity volatility by introducing stabilizing investments such as shorter term bonds or U.S. Treasuries. Active management can also help limit portfolio volatility because portfolio managers make research-backed decisions about what companies to hold or avoid in a volatile market.

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Many investors don’t realize that 529 plan assets can be used to pay for much more than books and tuition. In fact, distributions can be used to cover a long list of qualified education expenses at eligible institutions.

The recently passed Setting Every Community Up for Retirement Enhancement (SECURE) Act expanded qualified expenses to include registered apprenticeship programs and repayment of college debt. And since account owners have full control over 529 plan assets, they can even be the beneficiary of their own account — a huge benefit to anyone looking to go back to school themselves right now to advance their skills for the new work environment.