Barnett blow ‘not the end of the road’ for value

Barnett blow ‘not the end of the road’ for value
Mark Barnett, previously head of UK equities at Invesco

Mark Barnett’s departure from embattled fund house Invesco is not the “end of the road” for value investing, experts have said, despite his exit being a further blow to a strategy currently out of favour.

Last week Invesco announced Mr Barnett would leave the firm after 24 years with immediate effect following a prolonged period of underperformance, lost mandates and redemptions.

The troubled fund manager followed the value style of investing and therefore focused primarily on the share price and valuation of a company rather than the near-term earnings growth a company can be expected to achieve. 

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As value funds and shares typically perform better when inflation and interest rates are rising and economic growth is strong, it has been out of favour for more than a decade and the number of true value fund managers has decreased.

Well-known value manager Neil Woodford left the industry last year while Alastair Mundy, another value veteran, has recently taken a sabbatical for health reasons.

Darius McDermott, managing director at FundCalibre, said 10 years ago there was an equal number of value and growth managers but currently about 90 per cent of actively managed money was in growth strategies.

Mr McDermott said: “Value investing has had such a difficult backdrop, primarily due to the disruption and fallout of the last recession.

“Low interest rates and quantitative easing have been hugely supportive of growth strategies and bad for value.”

Although current circumstances — with interest rates at historic lows and a rising level of QE due to the coronavirus crisis — are bad for value, experts still argue the strategy will have its day.

Mr McDermott said: “If we see a notable pick up in inflation, you will see value going up. If and when Covid-19 looks like it's coming to the end then value will do well.”

Ben Yearsley, investment consultant and Fairview Investing, agreed. He said: “Value as a style is not dead. It has just had one hammer blow after another over the last few years.”

Only time would tell whether value would rebound, according to Jason Hollands, managing director at Tilney, but he argued “investment approaches have their days in the sun and the shade” so investors should “never say never”.

Adrian Lowcock, head of personal investing at Willis Owen, agreed value was not “dead” but said Mr Barnett's departure was a reminder that “people can run out of patience with it”.

'Nail in the coffin'

Mr Barnett’s exit was, however, likely to mark the end of unquoted companies in open-ended funds, the analysts argued.

Ryan Hughes, head of active portfolios at AJ Bell, said: “This isn’t the end of the road for value investing but it certainly is another nail in the coffin of holding highly illiquid unquoted equities in daily traded open-ended funds.

“Fund liquidity has become a key focus since the Woodford debacle last summer and as Invesco looks to remove these unquoted stocks from their portfolio it seems we are unlikely to see these types of holdings in open ended funds again which is a good thing.”