Is It Time to Look Again at ‘Value’ Stocks?

The premium placed on growth stocks is causing some fund managers to look again at unloved and out-of-favour value stocks

Cherry Reynard 16 June, 2016 | 11:17AM

In a low growth world, companies that can reliably grow their earnings and dividends have been rightly prized by investors. However, the premium placed on this growth has grown increasingly high and the past three months have seen some change of leadership in stocks markets, with more economically sensitive areas starting to recover from very low valuations. Does this herald a turning point for ‘value’ strategies?

The extent to which ‘value’ stocks have underperformed growth should not be underestimated: The FTSE World Growth index has outperformed the FTSE World Value index over one, three and five years. The terms are not perfect – there is overlap between the indices, for example – but it is indicative of a strong trend.

Value managers are starting to put their heads above the parapet. Ben Whitmore, manager of the Silver-Rated Jupiter UK Special Situations fund and head of strategy for UK Value at the group, said: “The dispersion in valuations between value and growth stocks is at its widest for 45 years. If an investor isn’t going to be a value investor now, they are never going to be one. Value needs to outperform by 40-50% to catch up. We believe there is a value premium over time and there should be some adjustment.”

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Alphabet Inc A1,763.90 USD2.10
Amazon.com Inc3,118.06 USD0.63
Facebook Inc A276.92 USD3.16
Netflix Inc482.88 USD1.31

About Author

Cherry Reynard

Cherry Reynard  is a financial journalist writing for Morningstar.co.uk.

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