RWC Partners is to launch a UK equity income fund, to be run by Nick Purves and Ian Lance.
Mr Purves and Mr Lance presently run the RWC Income Opportunities fund, which is a global equity fund. It has returned 43 per cent over the past five years.
RWC said the fund is being launched "in response to client demand".
Gary Tuffield, head of UK sales at RWC, said: "Investors are sounding the alarm bell around the extreme valuations of growth stocks and are rotating into value names as monetary policy becomes less supportive.
"With many managers having drifted to a growth style in recent years, the timing of this launch is of fundamental importance: markets are becoming more discerning about the valuations of perceived stock market darlings, many of which are struggling to grow their earnings and are resorting to debt financed M&A to justify their multiples.
"As earnings begin to disappoint we could see a huge de-rating across many sectors which could potentially lead to significant losses."
Mr Tuffield also spoke of a scarcity of value managers to which investors can allocate.
He said: "In many ways the landscape doesn’t look too dissimilar to that of the tech boom in the late 90s where value investing had been consigned to the history books. In hindsight it turned out to be the trade of the next decade."
Growth investing tends to be strongly in favour with the market when the economy is in the early stages of recovery from recession, in such a climate, only certain companies or sectors of the economy will be growing, so investors pay a premium for that growth.
But as the economic cycle matures, and more companies display growth characteristics, equity valuations will have risen, and the value style of investing, where the valuations of companies becomes more relevant, becomes fashionable.
Fund manager Nick Train, who deploys a growth style of investing, has said he thinks the traditional growth and investment cycles have been upended by the advent of technological change, and he doesn't expect value funds to perform well.
James Thomson, a fund manager at Rathbones who also deploys a growth style, said the value style of investing was based on the idea of buying the stocks that are cheap when growth is out of favour, and holding onto them until the value style is in favour.
Mr Thomson said many of the traditional value areas are cheap because of technological and other disruption, and so will remain cheap.
But Alistair Mundy, who runs several funds deploying the value strategy at Investec Asset Management, said the reason the growth style has persisted for much longer than is typically the case is due to interest rates being at very low levels, he expects the normal pattern to resume when interest rates rise.
The new RWC fund will invest in between 25 and 45 stocks, across the market cap spectrum. A maximum of 80 per cent of the portfolio can be invested in UK equities.
Alan Steel, who runs Alan Steel Asset Management in Linlithgow, said: "It could be [interesting] though the space has already quite a few 'high conviction' income funds.
"But I get worried about the space when they include the words ‘in response to demand from investors.’ Seen that too many times before. Since when has the herd called it right ?"
david.thorpe@ft.com
