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Value investing the way forward

Value investing

Investors should place their confidence in value stocks without waiting for a sign from the market before investing, an equity value fund manager says.

Value investing currently offers a better opportunity for individuals than that centred on growth stocks and should be considered an essential element of any long-term investor’s portfolio, according to a value manager.

Schroders equity value fund manager Simon Adler said value shares were preferable to growth shares because the current value of growth shares meant it would be extremely difficult to continue generating returns at the same level.

“The issue for people in growth-orientated investment today is that growth shares are trading at their 96th percentile of valuation versus value, and quality shares, which are synonymous in many respects, are valued at their 91st percentile,” Adler said.

“[These are] levels that [are] exceptionally hard to generate returns for clients from here.”

He also pointed out the vast majority of investors continued to be primarily focused on growth investing, making value stocks a more attractive option for the potential investor.

“Everyone is looking in the other direction. Ninety per cent of actively managed global equity funds are invested in growth-orientated shares today,” he said.

“This is especially true in Australia where there are some very successful funds that are invested in growth and quality investments.”

In addition, despite the past 10 years being the “toughest period on record’’ to be a value investor, he noted value equities had a long history of consistently outperforming growth shares.

Citing past instances when value investing had significantly exceeded growth investing in terms of returns, he cautioned investors against waiting for a signal from the market before investing in value shares.

“Those that are waiting for a catalyst risk missing out on the recovery,” he said.

“All of those people looking for the catalyst for value to recover are very unlikely to succeed because no one can even identify the catalyst in the past. And that is a very dangerous place for investors.

“It is better to invest now, while the opportunity is there.”

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