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Many have stopped looking for bargains, jumping instead into some of the market’s biggest winners, including tech stocks

Investors have given up bargain hunting so far this year.

Instead, they are piling into shares of some of the market’s biggest winners: so-called growth stocks, shares of companies that promise rapidly increasing profits and revenue.

They remain as hungry as ever for shares of software providers and cloud-computing companies, flocking to heavyweights like Microsoft Corp., Apple Inc., Amazon.com Inc. and Google parent Alphabet Inc. These stocks are sitting on double-digit gains in 2020 and have powered 45% of the S&P 500’s total return, which reflects price changes and dividend payments, according to S&P Dow Jones Indices.

The index has set 12 record closes this year as it has risen 4.6%, or 4.9% when including dividends.

“Investors believe they’re better positioned to weather any economic storm,” said Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management Co., speaking of growth stocks. “Even if there’s a recession, people will keep using Facebook.”

It is a shift from the fall when value stocks—those that tend to trade at low prices relative to their earnings or net assets—outperformed growth shares and pundits predicted their long-awaited rebound had arrived after years of disappointing returns. Those hopes were buoyed by three interest rate cuts by the Federal Reserve that were expected to spur a rally in bank stocks and other traditional value plays.

Since then, markets have been rattled by tensions between the U.S. and Iran and the coronavirus outbreak in China, which has sickened tens of thousands of people around the world and crimped business activity. Oil prices tumbled into a bear market and investors have flocked to traditionally safer bets like U.S. Treasurys.

But through the turbulence, investors kept snapping up shares of companies promising high growth, confident they can survive these challenges. Many are eager to hold on to stocks they view as enduring winners of a period of technology disruption. And despite their dramatic rally, valuations among tech giants aren’t approaching the levels seen during the dot-com bubble.

As they grapple with a murky outlook, investors will turn their attention this week to the Federal Reserve’s latest meeting minutes and fresh reads on manufacturing. Meanwhile, results from Walmart Inc. on Tuesday will offer new insight into the health of the consumer.

The run in value stocks “was short lived,” said Joe Fath, portfolio manager for U.S. growth stock strategy at T. Rowe Price. “There’s a number of crosscurrents that are driving what you’ve seen.”

The MSCI USA Growth index has returned 9% this year, while the MSCI USA Value Index added 1% through Thursday.

The divergence between growth and value shares has been wide since the financial crisis. Over the long run, however, value stocks have earned better returns than their growth peers, and some investors say it is only a matter of time before growth stocks’ reign ends.

The recent shift has given extra fuel to the market’s star performers and punished shares of financials and energy companies, which typically are in the value category. Financial stocks have struggled to keep pace with the broader market this year, rising just 0.9% in the S&P 500, as yields have dropped in the wake of the viral outbreak. Higher yields tend to improve banks’ lending profitability.

Meanwhile, the slide in oil prices has punished shares of energy companies. The S&P 500’s energy sector has declined 10.2% this year, the biggest drop among the 11 groups in the index.

As these sectors have muddled through, big tech companies, which have become nearly synonymous with growth in recent years, have continued to stand out. Overall corporate earnings have been roughly flat for the fourth quarter, but 84% of companies in the tech sector have reported profits that beat expectations, according to FactSet. Apple posted record revenue, while Microsoft’s cloud business continued to shine. Shares of both companies are near highs.

The S&P 500’s tech sector is up 11% this year, leading the way as it has for much of the decadelong bull run. The enthusiasm has even extended to initial public offerings like Uber Technologies Inc. and Pinterest Inc. that made a big splash last year. Though they initially floundered, the stocks have raced past the broader market, rising 33% and 25%, respectively, in 2020.

“The market is going to continue to reward these companies,” said Daniel Morgan, senior portfolio manager at Synovus Trust Co. “There’s still a large appetite for growth.”

Mr. Morgan said he recently bought more shares of Amazon ahead of the company’s latest earnings report. The e-commerce giant’s stock is up 15.5% this year, also to near record levels.

Investors say the recent tech run is different from the dot-com bubble and rooted in corporate fundamentals. However, some point to rallies in stocks like Tesla Inc. and Shopify Inc. SHOP -0.33% as a sign of over-exuberance in the market. Tesla’s rally has added $69 billion to its market value this year, while Shopify has gained $16 billion. Neither has ever posted an annual profit.

“It’s fear of missing out,” said Bill Smead, chief investment officer of Smead Capital Management, who added he remains optimistic about value stocks and recently invested in the energy sector.

Investors who missed out on other big tech companies’ gains in recent years may be hunting for the next favored stock, analysts said. And as these shares go up and up, they attract investors who buy stocks simply because they are rising, helping magnify their gains.

Some still say growth stocks won’t keep investors hypnotized for long. Many are expecting the Fed’s interest rate cuts to ripple through the economy, potentially reinvigorating shares of financial companies and other beaten-down shares.

Mr. Schutte, of Northwestern Mutual Wealth Management, said that if someone gave him $1 to buy FANG stocks—the popular acronym for Facebook, Amazon, Netflix and Google—or to invest in everything else, he would “take everything else.”

“I think the rally will broaden and things that haven’t been rising as much will rise more in the future,” he said.

India-based group’s next stage of growth is international expansion, but China’s hotel market is not a good fit with its model

Oyo is a curiously familiar concept. It has a beguiling business idea but has hit roadblocks after raising a tonne of money, some of it from SoftBank.

The Uber-like platform for hotels, like many start-ups, is investing heavily for growth. Businesses backed by the Japanese tech investor epitomise this greed for speed. The India-based group views current issues as teething problems that can be fixed through restructuring. Last month it axed 2,000 staff, exited 200 cities and purged 1,000 hotels from its platform. It is, in time-honoured words, “on the path to profitability”.

Oyo lifted revenues more than fourfold last year while net losses ballooned sixfold, according to numbers filed on Monday. By now, Oyo is well into its next stage: international expansion.

All the improvement last fiscal year came from the home market: for every dollar it brought in there, Oyo shelled out $1.12 compared with $1.22 the previous year. In China, its next biggest market at roughly one-third of revenues, it matched every dollar of revenues with $1.64 of spending. The sliver of sales from the rest of the world was less than half the operating expenses there.

The China segment looked vulnerable even before the coronavirus took a swipe at domestic tourism. Competition — from the likes of Tencent-backed Meituan Dianping and Ctrip — is far tougher than in India. Hoteliers gripe about reduced payments and little added value.

The real problem is more fundamental: China’s hotel market was never a good fit with the Oyo model. Oyo standardises ramshackle mom-and-pop lodgings; China has already moved up that curve.

Oyo owes its current mooted worth of $10bn to a funding round in which owner Ritesh Agarwal bought shares. He says the deal underscored his confidence in his company. Maybe so. But such “up rounds” have sometimes fattened valuations to impress other investors or prepare the ground for an initial public offering.

Mr Agarwal bristles at inevitable comparisons with WeWork, the flexible workspace company which backer SoftBank was forced to rescue. The onus is on him to provide evidence to the contrary.

It is hard now for any traditional industry to predict where their deadliest rivals will emerge

The watch industry has always displayed a strong streak of economic irrationality. After all, you can buy a Casio digital watch for £5 that will tell the time more reliably than a mechanical Patek Philippe Grand Complications costing 40,000 times as much.

As the advertising slogan goes, every watch tells a story. And the story the watch industry tells is that millions of people will pay a massive premium for style over function. Or, as Ralph Lauren put it rather more poetically, a fine watch, like a well-designed car, is best appreciated as “moving art”.

Still, economic irrationality has its limits. And the Apple Watch has been mercilessly exposing them by offering a radically different type of functionality and a very different kind of style.

According to research firm Strategy Analytics, the Apple Watch, launched less than five years ago, now outsells the entire Swiss industry, which has been manufacturing wristwatches for 152 years. Last year, Apple increased sales by 36 per cent to almost 31m watches while the Swiss industry shipped about 21m in total, a 13 per cent decline.

The one solace for Swiss watchmakers is that they still generate more revenue: $21bn to Apple’s $11bn. But on current trends Apple will overtake the Swiss on that measure, too, by 2023.

Of course, it would be a mistake to think of the Apple Watch as just a watch. The success of smartwatches follows the increasingly clichéd storyline of software eating hardware, as we have seen with cameras, calculators and DVDs. Not only does a smartwatch tell the time, it operates as a wearable computer. Connected to an app store, a smartwatch can perform hundreds of other functions, from sending and receiving messages to monitoring heart rates, menstrual cycles and glucose levels, from tracking open-water swims to checking whether excessive noise is damaging your hearing.

Increasingly, Apple sees its smartwatch’s prime function as a healthcare device. According to Sumbul Desai, Apple’s vice-president of health, the watch is an “incredible platform” that empowers users by giving them actionable information about their health. It even offers an electrocardiogram app, which can provide data for clinicians.

Several lessons can be drawn from the rise of the smartwatch. First, it is hard now for any traditional industry to predict where their deadliest rivals will emerge, given the mutability of competition. Who would have thought in 1984, when Steve Jobs launched the first Macintosh personal computer, that Apple would put such a dent in the Swiss horological universe a few decades later?

Second, a smart product is always likely to outsell a dumb one. A consumer’s ability to connect their device to their own personalised suite of applications provides a compelling reason to stick with the same networked provider.

Third, a big generational shift is under way as younger consumers increasingly live their lives online. Sales of traditional watches to the young have dropped particularly sharply, with the sleek designs and functions of a smartwatch appealing more to the digital generation.

For the moment, Apple dominates the smartwatch business with an estimated 50 per cent market share. But rivals such as Google, which enables Android smartwatches and recently acquired Fitbit, and Garmin, the US wearable technology company, are aggressively targeting this market, too. Some Swiss watchmakers, such as Tag Heuer, have launched their own smartwatches, although Tissot’s plans to develop its own operating system seem wildly ambitious.

The obvious conclusion is that Swiss watchmakers are doomed to decline, like horsewhip makers in the age of the motor car. Yet all is far from lost for the industry.

René Weber, a luxury analyst at Bank Vontobel in Zurich, highlights the sharp contrast in performance between the low and high-end watch segments. Since 2000, Swiss watches costing less than $1,000 have seen their unit sales halve, while watches costing more than $5,000 have seen volumes triple.

Mr Weber says sales of the most prestigious watches made by Rolex, Patek Philippe and Audemars Piguet have been little affected by the smartwatch revolution. Indeed, there are waiting lists for some of their top-end products because of capacity constraints in manufacturing complex mechanical watches.

“You buy these Swiss watches for eternity, whereas you throw away a smartwatch after two to three years,” he says. “It is a different kind of watch, a different kind of experience.”

- Considering new trade restrictions on China that would limit the use of US chip-making equipment

- Commerce Dept is in the process of drafting changes to the foreign direct product rule

Combined group to have £65bn of assets

Jupiter Fund Management has agreed to buy Merian Global Investors, bringing together two of the UK’s most popular investment groups among retail customers.

Jupiter’s board confirmed over the weekend it was in advanced discussions with its smaller rival, which is best known for its stockpicker Richard Buxton, and announced on Monday that it had agreed a deal.

Under the announced terms, Jupiter would pay £370m for Merian through the issue of new shares, with Man additional £20m to be paid to Merian’s main shareholders — including Mr Buxton — as part of a deferred earn-out plan.

The combined group would have £65bn of assets, creating the second-biggest manager of retail funds in the UK.

“This is an exciting acquisition that enhances our position as a leading UK asset manager, provides increased scale and diversification into attractive product areas, and creates stronger future growth prospects for the business,” Andrew Formica, Jupiter’s chief executive, said. “It is also consistent with our strategic priorities, adding strong investment talent with a similar culture and investment philosophy.”

TA Associates supported a management buyout of Merian from Old Mutual Wealth just over two years ago for £600m, but Merian’s assets under management fell by £7bn last year, with heavy outflows from its Global Equity Absolute Return Strategies fund accounting for most of the drop.

Chris Turner, an analyst at Berenberg, said the deal was more tactical than strategic. “An acquisition of Merian would do little to broaden Jupiter’s distribution footprint or product offering in our view, but — at the right price — it would likely provide a tailwind to Jupiter’s medium-term earnings,” he said. “This may help ‘buy time’ for management’s organic growth initiatives to bear fruit, or for Jupiter to find further — more strategic — M&A options.”