While growth stocks chase the future, value investing is quietly winning

The investment landscape is shifting in ways that reward a different kind of discipline. Reece Birtles, portfolio manager and head of Australian equities at ClearBridge Investments, thinks the 2026 Federal Budget has made that shift more pronounced, and more permanent.

His argument cuts straight to the point: the budget further incentivises investing for profits and income rather than relying on future capital gains.

For Australian value investing strategies focused on profitable, income-generating businesses, the policy direction is not a headwind. If anything, it strengthens the case for owning exactly the kind of companies that value managers have always preferred.

The franking credit advantage

Complying superannuation funds emerge from the budget largely unaffected. They retain full access to franking credit refunds and pay no capital gains tax inside the pension phase. Outside superannuation, however, the calculus is changing.

“Under the proposed regime, franked Australian dividends are likely to become an increasingly attractive way for investors to receive income and returns relative to capital gains.”

That shift has real portfolio implications. Businesses generating consistent profits and distributing franked income to shareholders are becoming structurally more attractive relative to growth stocks dependent on future capital appreciation. Value investing, in its most disciplined form, is built around exactly that kind of business.

What the market is offering right now

The Australian market has seen a strong rebound in value stocks in 2026. Elevated valuation dispersion, improving earnings momentum and heightened market volatility are combining to create opportunities to deploy targeted Australian value investing strategies into quality businesses at prices that would have been difficult to access twelve months ago.

Birtles is watching two areas of potential weakness closely. Consumer-facing stocks and banks are among those most exposed to the downside as inflationary pressures continue to squeeze household budgets. That caution shapes where ClearBridge is not looking as much as where it is.

On the other side, the energy crisis has sharpened the investment case for what Birtles calls “fuel security” plays. ClearBridge holds positions in Ampol, Santos, AGL Energy, Aurizon Holdings and Orica. These are businesses operating in sectors that have been underinvested for the past 20 years. With demand now spiking, their pricing power and resilience are being rewarded.

How AI is reshaping the Australian equity opportunity

Australia is not the centre of large language model development, semiconductor manufacturing or AI infrastructure. But AI is still reshaping the investment landscape here, just differently.

Birtles has a clear view on where the disruption lands. Software as a service (SaaS) businesses face a structural challenge.

Over the past 15 years, quality growth in Australia has largely been defined by low capital intensity and the ability to continually raise prices. AI challenges that model directly, because it dramatically lowers the cost of producing new products and services.

As pricing power declines, competitive advantages erode faster. Birtles names WiseTech and Xero as businesses where AI could shorten the competitive advantage period and increase the investment required to stay ahead.

Australian oligopolies, by contrast, are relatively well positioned. Telstra is the example Birtles reaches for. AI could deliver productivity gains of two to three per cent per annum, which has historically been difficult to achieve in the Australian economy. That improvement does not necessarily require significant job losses. It is about becoming more efficient and reducing costs faster than revenue growth slows.

Australian resources tell a third story. BHP now generates more than half of its earnings from copper. Lynas is arguably the leading rare earths producer globally. Independence Group owns the world’s highest-grade hard rock lithium mine. These are commodities that will be critical in powering electrification and AI infrastructure for years to come.

Valuation opportunities beyond the obvious

Healthcare is perhaps the most striking example of where thematic selling has created a genuine fundamental opportunity. Global healthcare stocks have been caught in broader anti-inflationary positioning, pushing down prices in businesses the market has mispriced on sentiment rather than substance.

ResMed is trading on around 16 times earnings while delivering double-digit earnings per share growth. Commonwealth Bank is trading on approximately 25 times earnings with very limited earnings growth. That comparison makes the point better than any framework could.

“Attractive valuation opportunities are not confined to traditional value sectors,” Birtles says. “They can also emerge within growth businesses when markets become overly thematic.”

The budget has shifted the incentives. The energy crisis has revealed which businesses have real pricing power. AI is separating the durable from the disrupted.

For investors willing to look past the noise and focus on earnings, income and price, the opportunities are hiding in plain sight. The question is, are you are positioned to see them?