Fear of Missing Out Drives Stock Performance

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Pepsi shares had their best day in nearly a decade on Tuesday after an earnings report showed its North American beverage sales had mostly stopped falling.

Pepsi shares had their best day in nearly a decade on Tuesday after an earnings report showed its North American beverage sales had mostly stopped falling.


Photo:

Mark Lennihan/Associated Press

Fear of being left behind is a powerful force among fund managers, even if it means taking big risks.

This year, managers not invested in tech stocks should be polishing their résumés. In the first six months of the year, technology shares accounted for more than 100% of the gains in the S&P 500.

Stocks in other sectors where investors see growth prospects can rise sharply too—as long as they have a story to tell Wall Street.

Pepsi

shares had their best day in nearly a decade on Tuesday after an earnings report showed its North American beverage sales had mostly stopped falling.

The best recent example of this phenomenon is

Biogen
,

whose shares soared by about 20% last Friday, adding about $13 billion to the company’s market value. That move came after the biotech giant and its Japanese partner Eisai announced promising clinical data for patients with Alzheimer’s disease. All of a sudden, what had been a value stock became a compelling growth story, and Wall Street didn’t want to be left behind.

The stock has mostly held those gains, even as some analysts expressed skepticism that the full data will pass muster when Biogen eventually shows it. History is on the skeptics’ side; the historical success rate for clinical trials in Alzheimer’s disease is below 1%. For now, however, that is a risk that shareholders are mostly willing to accept.

Skepticism about a highflying stock is something of a luxury for investment managers who measure their performance against a benchmark. Biogen is a big liquid stock that is a member of the S&P 500, making it hard to turn down for growth managers. The company ranks third and accounts for roughly 8% of the Nasdaq Biotechnology Index, which is weighted by market value.

Aside from the desire for growth, there are valid reasons for buying Biogen. Any treatment for Alzheimer’s, one of the biggest unmet medical needs, could be worth tens of billions of dollars. Such success wasn’t reflected in the company’s share price, which is only 14 times forward earnings. After all, the stock traded as high as 24 times forward earnings back in 2015. Even if shares don’t rally as much, missing such a run-up could cost managers and analysts their jobs.

Growth stocks within the S&P 500 have outperformed the value stocks by 11 percentage points this year, according to FactSet data. That reality makes the fear of missing out a powerful force—and means that the trend can feed on itself.

Write to Charley Grant at charles.grant@wsj.com