Technological disruption will make it increasingly difficult for all but the very best value fund managers to perform in the future, according to Andrew Summers, head of fund research at Investec.
He said technological disruption could lead to the share prices of many companies falling rapidly below their historical averages, and coming onto the radar of value fund managers.
Mr Summers view is that the share prices will not be falling due simply to a short-term shift in investor sentiment, or being the wrong side of the economic cycle, but for long-term structural reasons.
Mr Summers said that deep value funds work on the basis that certain companies fall in or out of favour, before reverting back towards their historical mean valuation.
Recovery funds seek to buy the shares of such companies when they are out of favour, and sell them when they are restored to popularity.
He said this strategy is likely to be harder to implement in the coming years as technological disruption is likely to make many of the companies that look like ripe investments for recovery funds “cheap for a reason”, rather than just out of favour.
He thinks recovery and deep value funds will struggle in general, with perhaps only the very best of that style of fund able to thrive in a world of technological disruption.
Alastair Mundy, who runs the £1.03bn Temple Bar investment trust, among other mandates, is an investor who is a recovery fund manager.
In the recent half year results statement for the trust he said the end of low interest rates and quantitative easing would benefit his trust, and the recovery style of investing as a whole, because it would be a sign of stronger economic growth, while higher bond yields would aid his holdings in banks, a sector that has been out of favour in a low interest rate world.
Mike Coop, head of multi-asset portfolio management for EMEA at Morningstar, said that throughout history technological disruption has happened, companies have risen and fallen, and the fund managers who are skilled value investors are capable of differentiating between companies that are out of favour due to the economic cycle and those which are in secular or structural decline as a result of disruptions to the industries in which they operate.
Patrick Connolly, chartered financial planner at Chase De Vere, said that rather than trying to time when to invest in deep value funds, his firm prefer to place clients capital into a portfolio that has funds representing all of the different investment styles at once, in order to achieve a balanced portfolio.
david.thorpe@ft.com
