Value investing is ripe and ready to deliver robust returns after passing ‘ten key tests’ which show conditions for such stocks are ‘perfect’, according to River and Mercantile.
Hugh Sergeant, manager of the UK and global recovery funds at the fund house, said now was the “best time for many years” to invest in value stocks as they were likely to surge once the economic storm brought on by Covid-19 passed.
Mr Sergeant said he had “10 key tests” to gauge the right time to invest in value stocks — and all of them had been passed.
He said: “Value will be back. Value nearly always does well in an economic recovery period, especially if that recovery happens at a time when value is relatively attractively priced, which it most definitely is today.
“I believe that now is, at least according to the data, the best time to invest in value, recovery and multi-cap that I have seen in my career.”
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.
A number of well-known value managers, such as Neil Woodford and Mark Barnett, have also left the industry in a high-profile fashion.
But advocates of the style have insisted the value strategy is “not dead” and maintained it would swing back into favour.
Mr Sergeant added: “Growth and quality stocks’ relative fundamentals will peak as more cyclical value stocks start to see profits recover.
“Brought-forward digital spending will struggle to preserve the momentum embedded in many growth and quality stock share prices. And finally, liquidity and passive investing may change direction as momentum shifts from deflation to reflation beneficiaries.”
Jason Hollands, managing director at Tilney, said it was “understandable” that some strategists were questioning how much longer the prolonged outperformance of growth could continue.
He said: “It is quite possible that when investors become convinced that the recovery is durable and has momentum, we could well see renewed interest in more traditionally cyclical and economically sensitive parts of the market such as energy, raw materials, real-estate and financials, which would provide a more favourable environment for value funds.
“Most investors will be reticent about making a wholesale shift, but with many investors almost entirely focused on growth funds, there is certainly a case for taking a more balanced approach and adding some more value aware strategies to a portfolio.”
Ben Yearsley, investment consultant at Fairview Investing, said he agreed with Mr Sergeant’s “10 points” but could not see what the catalyst would be for value to return.
He added: “Brexit, the coronavirus and the lack of dividends are all adding up to knock value. However, even if these three factors dissipate there still needs to be a catalyst for value to return.”
imogen.tew@ft.com
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