Low interest rates and concerns about global economic growth have resulted in a rough decade for value investors. Although high-growth companies such as technology leaders and more defensively positioned businesses have found favour among investors, banks and other types of companies that tend to rely on rising interest rates and strong economic growth have lagged.
Strong relative performance
Well-resourced managers
Changing markets
Rigorous investment process
Out-of-favour style
The difference in performance has been stark: MSCI AC World Growth index increased 243.5 per cent in sterling terms over the decade to the end of October, while MSCI AC World Value index only rose 154.3 per cent during this period.
But there are signs of hope for investors with a value bias. Although popular stocks and sectors have looked worryingly expensive, some value stocks appear extremely cheap. And value investing has showed signs of making a comeback in recent months in areas including the US and UK. Factors such as a thaw in US/China trade relations and the prospect of fiscal stimulus in some developed economies could spur this on. So while a resurgence for value-style investing is not guaranteed you could consider tilting your portfolio more towards it in case market conditions change over the longer term.
One way to increase your portfolio's exposure to value-style investing is to add an established global value fund such as Investec Global Special Situations (GB00B29KP103). This fund is run by Investec’s experienced, well-resourced value investing team, who focus on buying shares they think are undervalued due to weak market sentiment.
Co-managers Alessandro Dicorrado and Steve Woolley, who have run the fund since the start of 2016, first look for shares that have fallen by 50 per cent relative to the indices in which they are included. They then look to ascertain why the price has fallen and what the market consensus on the business is, and analyse fundamental characteristics including the company’s balance sheet and cash flow.
They then build a concentrated portfolio of companies they view as attractive – the fund only had 40 holdings at the end of September. This results in large bets on specific sectors and areas, for example it had 30.8 per cent of assets in industrials and 29.3 per cent in financials at the end of September. And it had a hefty 21 per cent allocation to the UK.
Investec Global Special Situations has outperformed the Investment Association (IA) Global fund sector average over three, five and 10 years. Its focus on out-of-favour areas means it has lagged MSCI AC World index over one, three and 10 years, but it beats MSCI AC World Value index over three, five and 10 years, suggesting that its managers have picked good names from their investment universe.
Including this fund in your portfolio involves some risks. For example, in the second half of 2016 value stocks briefly outperformed the wider market before once again trailing behind. This could happen again, meaning that investors in this fund run the risk of missing out on better performance elsewhere. So think carefully about how comfortable you are with a contrarian investment approach and position your portfolio accordingly.
But if you have a high risk appetite and long-term investment horizon you should be able to wait for this fund and its investments to come to fruition. And if you want greater value exposure without taking too much of a gamble, you could try to mitigate this fund's potential downside by holding it alongside funds more focused on quality and growth factors, while ensuring that you do not duplicate exposures you already have in the portfolio.
So if you want more of a value tilt, this fund's well-resourced managers and rigorous, high-conviction approach mean it is still a good option. Buy. DB
Investec Global Special Situations (GB00B29KP103)
| Price | 307.6p | Mean return | 10.05% |
| IA Sector | Global | Sharpe ratio | 0.6 |
| Fund type | Open ended investment company | Standard deviation | 15.08% |
| Fund size | £189m | Ongoing charge | 0.86% |
| No of holdings | 40 | Yield | 1.84% |
| Set-up date | 17-Dec-07 | More details | www.investecassetmanagement.com |
| Manager start date | Alessandro Dicorrado and Steve Woolley, 01/01/2016 | ||
Source: Morningstar as at 11 November 2019
Performance
| Fund/benchmark | 1-year total return (%) | 3-year cumulative total return (%) | 5-year cumulative total return (%) | 10-year cumulative total return (%) |
| Investec Global Special Situations | 5.21 | 35.01 | 83.05 | 176.99 |
| IA Global sector average | 12.19 | 33.46 | 66.5 | 160.35 |
| MSCI AC World index | 13.9 | 35.98 | 77.82 | 199.94 |
| MSCI AC World Value index | 9.91 | 25.68 | 59.78 | 158.71 |
Source: FE Analytics as at 11 November 2019
Top 10 holdings
| American Express | 5.60% |
| Bank of America | 5.10% |
| Citigroup | 4.40% |
| Capita | 4.20% |
| TAV Havalimanlari | 3.80% |
| Travis Perkins | 3.80% |
| Welbilt | 3.70% |
| Bayer | 3.30% |
| Adecco | 3.20% |
| Deere & Co | 3.20% |
Source: Investec as at 30 September 2019
Geographic breakdown
| US | 48.30% |
| UK | 21.00% |
| Emerging markets | 13.00% |
| Europe | 12.30% |
| Japan | 4.90% |
| Cash and bonds | 0.50% |
Source: Investec as at 30 September 2019
