The impact of technological change on the world is profound and long-lasting, but it doesn’t mean investors should abandon traditional valuation metrics when they invest, according to Simon Adler, part of the value equity team at Schroders.
Adler’s comments came as he was a guest on the latest FTAdviser video, which explored the topic of finding value in global equity markets after the pandemic.
Investors seeking a diversified equity portfolio have faced the challenge of technological disruption and historically low interest rates potentially upending traditional valuation metrics, leading to a scenario where a relatively small number of shares have driven equity market performance.
Adler says that over the long-term, despite the uncertainty in the world, traditional valuation metrics will win out.
He says: “If you look back over the past 100 years, there has always been uncertainty.
"There has always been unprecedented this and unprecedented that. We have had inflation, deflation, and stagflation, but throughout all of that, the traditional valuation metrics, buying the companies that are cheap, has worked.”
He adds: “An example I would give is, imagine you had two lucky grandparents, and in 1928 they both won £10,000 on the lottery. One of them invests in the growth stocks of the time, and the other uses traditional valuation metrics. The grandparent who bought growth stocks, that pot would be worth £80m now, whereas the pot of the grandparent who paid attention to valuation, would be worth £380m now.”
Adler says that when assessing whether a company is truly cheap, the ability of that company to withstand technological disruption is one of the factors they prioritise.
He adds: “We screen all of the companies in the world to find the cheap ones. But then we ask seven questions, to try to understand why they are cheap. Among the questions we ask is around balance sheet quality, and ESG. But a major one is whether the company can withstand technological change, and if it cannot, then we think the company is not cheap enough to be investible.”
david.thorpe@ft.com
