Value style investing has not done well recently as investors have preferred growth and quality stocks for much of this decade.
Right environment for value investing
Strong manager track record
Potential short-term underperformance
Value investing involves buying a stock because its share price is fundamentally lower than it should be. This can be due to negative sentiment on its geography or sector, or because the company is undergoing structural changes that mean its share price is impacted in the short term.
In times of economic confidence and inflation, when bond yields rise, value stocks have tended to perform better than growth or quality stocks, as the latter's valuations become harder to justify and their income yields become less attractive. And global equity markets look as though they are entering such a period, with a good outlook for economic growth, likely interest rate rises and increasing inflation in the US.
A good way to capture market gains in such an environment could be Jupiter Global Value Equity Fund (GB00BF5DS374). Its manager Ben Whitmore is a seasoned value investor, having run a UK value fund since 2006 – Jupiter UK Special Situations (GB00B4KL9F89). In 2016, he took on JGF-Jupiter Global Value (LU0425094348), a fund aimed at continental European investors. And earlier this year Jupiter launched a version for UK investors – Jupiter Global Value Equity Fund – which invests in the same way and has the same holdings as JGF-Jupiter Global Value.
Mr Whitmore has not just made good returns when value-style investing is in favour. JGF-Jupiter Global Value fund has made a 31 per cent return since Mr Whitmore started running it in October 2016, against 8.9 per cent for MSCI AC World Value index and 13.6 per cent for MSCI AC World index, and the Investment Association (IA) Global fund sector average of 13.9 per cent. Jupiter UK Special Situations, meanwhile, has made a five-year cumulative total return of 62 per cent against 44 per cent for the FTSE All-Share index.
Mr Whitmore says oil and mining company concerns on the prices of commodities, and problems stemming from the financial crisis among financials, have meant that these types of companies have been allocating capital more efficiently. So these sectors, which account for 40 per cent of Jupiter Global Value Equity's assets, are now better placed to provide good shareholder returns.
Mr Whitmore also favours slightly smaller companies, so Jupiter Global Value Equity's holdings have an average market cap of £6.2bn. This is in contrast to the £12.7bn average size of companies held by funds in the Morningstar Global Flex-Cap sector.
Over a third of Jupiter Global Value Equity's assets are listed in the UK. This is in part because some of the sectors to which it is heavily weighted feature prominently on the London Stock Exchange. But it is also because many UK shares seem to be on depressed valuations due to sentiment rather than fundamentals. For example, a Bank of America Merrill Lynch sentiment survey of global investors found that the UK is their least favoured region.
Value-style investing is high risk: when it works out the returns can be exceptional, but when markets don't favour it, the returns can be dire. Sometimes cheap companies are priced accurately, and many investors have wrongly predicted when value will return to favour.
And as value investing involves buying companies when their share prices are artificially low, and holding out until they move to a fairer valuation, you may have to wait some time before you make good returns.
However, Mr Whitmore's past performance has been good, and he has proved this ability to make the right calls and generate good returns even when value-style investing is not in favour. So, if you want to add a fund with a different approach to your portfolio and capture what looks like a return to favour for value investing in a globally-diversified way, Jupiter Global Value Equity Fund looks one of the best ways to do it. Buy. TL.
|Jupiter Global Value Equity Fund (GB00BF5DS374)|
|IA SECTOR||Global||SHARPE RATIO||0.84*|
|FUND TYPE||Unit trust||STANDARD DEVIATION||10.82%*|
|FUND SIZE||£66m**||ONGOING CHARGE||0.95%**|
|SET-UP DATE||27.03.18**||No OF HOLDINGS||34*|
|MANAGER START DATE||27.03.18**||MORE DETAILS||jupiteram.com/UK|
|Source: Morningstar, *Morningstar figures for JGF-Jupiter Global Value Fund (LU0425094348) & **Jupiter|
|Fund/benchmark||1-year total return (%)||Cumulative return since manager start on 26.10.16 (%)|
|JGF-Jupiter Global Value||22.64||31.2|
|IA Global sector average||7.63||13.97|
|MSCI AC World Value index||4.14||8.83|
|MSCI AC World index||8.29||13.56|
|Source: FE Analytics as at 8.05.2018|
|Top 10 holdings as at 31.03.2018 (%)|
|Geographic breakdown (%)|
|Europe ex UK||13.5|
|Asia Pacifc ex Japan||5.4|
|Source: Jupiter as at 31.03.18 (figures for JGF-Jupiter Global Value Fund (LU0425094348)|