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BLOG: Taking the style agnostic approach

Paloma Kubiak
Written By:
Paloma Kubiak

Like fashion, investor trends change, flipping between value or growth. But how can you gain exposure to value – without sacrificing growth? Here are some funds which sit on the fence.

It was the French fashion designer Yves Saint Laurent who famously declared that “while fashions fade, style is eternal.”

The same is true in the world of investing – where the debate between growth and value has gone on since Benjamin Graham popularised the theory of value investing a century ago.

The main difference between growth and value stocks is that value stocks are companies investors think are undervalued by the market, and growth stocks are companies that investors think will deliver better-than-average returns. Growth companies also tend to be more expensively priced than the broader market.

For much of the past 15 years growth has dominated the debate. We saw technology firms reach new highs, aided by low interest rates and other accommodative monetary policy. Some investors would even go as far as to say that value investing had become obsolete.

Value rallies have tended to be fast and furious in recent times – it’s been almost a case of blink and you’ll miss it. But the past couple of years have breathed a new lease of life into value investing.

The MSCI World Value Index outperformed its growth counterpart by more than 20% in 2022 with rising rates and inflation being stickier than expected – both have been supportive of value stocks in the past.

The era of technological disruption also seems to be entering a more mature phase, which will also be supportive for value stocks.

An interesting point in markets

The direction of inflation is the big discussion in markets at the moment. Figures for April placed inflation in the UK at 8.7%, down from 10.1% in the year to March. There has been a lot of talk that rising rates will result in inflation falling quickly. This has been reflected in markets with growth outperforming value year-to-date.

But this is by no means a consensus view. Ninety One UK Special Situations co-manager Alessandro Dicorrado says value investors are wrong to associate their fortunes with rising inflation, adding that the evidence for this has only been true for the past decade or so. By the same token, he also believes the market has been too quick to rebound towards growth amid expectations that inflation/rates will fall quickly from here.

He says: “The trade of the past 10 years of going to growth when rates come down might be the right call again, but I think once inflation hits food prices and wages – as it has – it will take a lot longer to work through the cycle. If that happens, the re-rating [of growth companies] we’ve seen at the start of the year won’t last.”

Pessimists would also say the drivers behind the low rates, low growth world we saw for much of the past 15 years (which caused the quality growth stocks to outperform) haven’t changed. Demographics remain poor in developed markets; debt levels are high, and productivity is flatlining – making it difficult to justify a long-term value rally.

So how can investors gain exposure to value – without sacrificing growth? Thankfully, there are a number of funds which sit on the fence – giving you the potential for returns in either economic scenario. Below are four funds which fit into this style agnostic bucket:

Fidelity Global Special Situations

The Fidelity Global Special Situations fund, managed by Jeremy Podger, has also shown its ability to succeed in various environments. The portfolio is well diversified with around 100 to 150 holdings and is unlikely to take large country or sector bets.

Rathbone Income

The fund has one of the best – if not the best – track records among open-ended funds for paying dividends. Manager Carl Stick maintains a concentrated portfolio of between 30 and 50 holdings, all of which are chosen for their high quality and visibility of earnings. Stick is somewhat of a contrarian investor, so the fund may lag behind while his peers ‘catch up with the news’.

BlackRock European Dynamic

Backed by a highly intricate, in-depth research process, manager Giles Rothbarth builds a fairly concentrated portfolio of around 50 stocks. The fund has a completely flexible investment style, which Rothbarth is able to adapt based on where we are in the economic cycle.

Polar Capital Healthcare Opportunities

Healthcare has shown itself to be a sector which performs regardless of any style being in or out of favour. The managers of this fund take a multi-cap approach, investing globally across pharmaceuticals, biotechnology, services and medical devices. They look for themes in the market and identify companies that are reasonably priced and with good growth prospects. This leads to a concentrated portfolio of approximately 45 stocks.

Juliet Schooling Latter is research director at FundCalibre