Cameron Blanks from Pacific Equity Partners speaks to James Dunn at The Inside Network’s Alternatives Symposium in Melbourne on looking through the cycles and catalysing growth. The Inside Adviser
Duncan Farley from RBC Bluebay Asset Management speaks to Giselle Roux at The Inside Network’s Alternatives Symposium in Melbourne on macro trends that matter more. The Inside Adviser
‘Now is the time for value’ – Martin Currie
According to Martin Currie chief investment officer Reece Birtles, the timing “could not be better for ‘value’ stocks.” This is a theme reiterated by the likes of Andrew Clifford of Platinum Asset Management this week, who described markets as being gripped with “speculative mania in high-growth stocks” in a world that has “gone crazy.”
Birtles’ view is based on more detailed analysis, noting that “there is a tight correlation between value spreads, economic growth and bond yields.” The last ten years, if not longer, have seen traditional value stocks, on a P/E measure at least, under-perform growth consistently. However, Birtles highlights in a recent article that the performance deficit against growth appears to have bottomed in Q3 2020, as vaccine approvals combined with stimulus sent global purchasing managers’ indices (PMIs) and bond yields around the world higher.
“Given the likely ongoing recovery of economic growth and bond yields as the vaccine is rolled-out and the world recovers from COVID-19, we believe that spreads will again tighten and continued significant value outperformance is likely,” says Birtles, with the Australian market representing a ‘sounder’ opportunity for investors. There is, of course, a big difference between value and growth companies in the US, compared to Australia and many other countries.
This is proven, according to Birtles, by the fact that “many global value portfolios are reliant on narrow index positions in banks, energy and Europe, versus the dominant platform, technology, healthcare and US stocks”. On the other hand, he notes that Australian value stocks “are not dependent on structural or geographic bets, and offer more diverse sector opportunities”.
He mentions a number of value stocks that Martin Currie currently views as undervalued, including Nine Entertainment (ASX:NEC), Star Entertainment (ASX:SGR), Worley Parsons (ASX:WOR), the big four Banks and Ingham’s (ASX:ING). It is an interesting collection of companies that ranges from online entertainment, travel, mining services, financials to food.
Birtles stresses that investing in value stocks doesn’t have to be associated with buying poor-quality companies compared to their growth counterparts; rather, Martin Currie believes that maintaining quality is more important than ever.
Morningstar’s recent market update showed that Australian value managers outperformed growth managers over the three months to January by 13.9 per cent to 11.2 per cent; perhaps the tide is turning.
