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Investors urged to ‘tread cautiously’ over value surge

Investors urged to ‘tread cautiously’ over value surge

Investors have been told to be “cautious” about a value resurgence next year after the investment style came back into fashion at the end of 2020.

According to Charlie Parker, managing director at Albemarle Street Partners, a shift to value and its positive impact on currently unloved stocks was a trend investors should “embrace only cautiously”.

He told FTAdviser: “As we look to the year ahead in a sense we can expect a more predictable path for the world.

“Rates will stay ultra-low, governments will keep the spigots of spending open and the vaccine looks all but certain to allow for a period of sharp economic expansion across the world.”

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

Although current circumstances — with interest rates at historic lows and high levels of QE due to the coronavirus crisis — are bad for value, commentators maintain the strategy will have its day in the sun yet.

This is primarily because while economic uncertainty is a negative for value stocks, when the tide does turn, and economic growth returns, value tends to outperform growth for a period.

Mr Parker said this shift would be felt most strongly in areas of the world that saw the largest downturns amid the crisis, such as the UK and Europe.

He said: “The sharper pain felt here by waves of recurrent lockdowns leads us to forecast the largest jumps in GDP as a result of the vaccine.”

Pre-vaccine, Albemarle Street Partners had predicted the Eurozone would grow by 3 per cent next year, but the discretionary fund manager now forecasts a 5 per cent growth.

In the UK, pre-vaccine forecasts stood at 4 per cent. Now the firm forecasts an 8 per cent jump.

Mr Parker said: “This shifting economic picture leads us to place higher expected returns on the UK and European shares on an annual basis over the next five years.

“However, this is a trend that we should embrace only cautiously. It would mark a remarkable shift in market leadership away from the US, growth and momentum-led pattern that has dominated for the past 10 years.”

He said the shift would be a “sharp change” from where profit will come from in investors’ portfolios, noting it was “doubtful” that many were fully prepared for it.

Mr Parker added: “The golden message will be to watch this market and factor rotation very carefully, tread only cautiously into the new trend and be prepared to change course if the facts change.”

imogen.tew@ft.com

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