One of the defining characteristics of the investment world since the financial crisis of 2008/09 has been the underperformance of value investing as a style. There has been much academic work suggesting that over the long term a value approach – in simple terms buying companies where the prices are cheap relative to fundamentals – usually pays off. But in the past 10 years this has emphatically not been the case.
The concept of value investing is pretty straightforward. Value investors look for shares that are selling for less than they deem them to be really worth. The hope is that the market will eventually catch up, resulting in the ‘intrinsic value’ of a company and its market value converging, enabling investors to profit from the revalued share’s price increase.
There were signs in the last quarter of 2018 that the growth/technology stocks that had led the bull market were flagging. However, market momentum remains strong, and global consumer brand companies such as Unilever and Diageo are still loved.
Thinking back a year ago, there was a notable lack of bargains for investors to consider, following a period of unprecedented market calm in 2017.
Heading into the start of 2019, the landscape has changed markedly as volatility returned with a vengeance; while this poses its challenges, however, it does create opportunities for long-term investors to ‘buy low’. So here we have rounded up the main areas for investors keen to go bargain-hunting to focus on.
As the stockmarket’s super-speedy growth hares roll over, something small, with a dark shape and domed top, is slowly approaching – a tortoise. Finally, it looks as if all the forgotten “tortoise stocks” that investors gave up on years ago, have started catching up as market conditions change.
With a backdrop of tepid global growth, volatility and uncertainty, Asia remains one of the few reliable sources of growth today. Forecast to continue to grow faster than the rest of the world, we still see a huge number of opportunities for companies to take advantage of Asia’s structural economic growth story. We believe investors can capture this exciting return opportunity by investing in Asia’s smaller companies. But simply focusing on company growth is not enough for equity investors in this space to make the best returns.
While we have witnessed a recent surge in FTSE stocks due to fresh falls in sterling, UK market companies have been stubbornly out-of-favour with global investors. Political uncertainty continues to linger, and investors are concerned about how potential interest rate hikes this year could affect the economy.
Value or growth? It’s a debate that has consumed investors for decades. Growth investors scour the markets for businesses that have the potential to grow faster than the market, while value investing is the discipline of hunting for shares that have been mispriced by the market.
The UK stock market continues to be given the cold shoulder by both retail and institutional investors, with Brexit blues largely to blame.