It’s dangerous to say such things, but 2023 has so far been a difficult year in which to lose money. All major regional equity markets were up in sterling terms for the year to date as of 13 February, while closer to home every single fund in the Investment Association’s UK All Companies sector was in the black. A rising tide is lifting all boats, much to the relief of those invested in the growth funds that took such a battering last year.
If growth portfolios are looking notably healthier, some of the bigger value funds are still holding their own. Ninety One Global Special Situations (GB00B29KP103) ranked 26th out of 530 funds in the IA Global sector at the time of writing thanks to an 11.6 per cent return, with Schroder Global Recovery (GB00BYRJXL91) and R&M Global Recovery (GB00B9428D30) not far behind.
Schroder European Recovery (GB0007221772) tops the performance charts for its sector so far this year, while value-minded portfolios such as Artemis UK Select (GB00B2PLJG05), Ninety One UK Special Situations (GB0033063636) and Jupiter UK Special Situations (GB00B4KL9F89) are among the best performing UK funds.
So value investing is not dead but its definition does remain highly subjective. That’s the gist of a recently published note from GMO Investment Solutions arguing that while US value stocks have started to look attractive, companies have substantially different approaches to building indices of such stocks. Differing methodologies mean that the US value indices highlighted by GMO had hugely disparate returns, with one example outperforming a growth counterpart by 1.6 per cent and another underperforming by 7.6 per cent. This also affects just how cheap you go, with GMO noting: “If you are buying value passively, you could be paying 21 times for a 19.5 per cent return on equity (ROE) group of stocks or 25 times for a 13 per cent ROE portfolio.”
UK investors at least aren’t spoiled for choice on this front, with not much in the way of options available bar the factor exchange-traded funds (ETFs) offered by iShares. As we’ve noted before these do come with limitations, as with the iShares MSCI World Value Factor UCITS ETF (IWFV) taking a sector neutral approach that prevents it from doubling down on industries that look especially oversold. That in some ways supports the case for sector funds as a riskier but more targeted way to capture market rotations. Investors can also use major equity markets as proxy plays on different styles – be it the energy and banks-heavy FTSE 100 as a cyclical play or the S&P 500 (or Nasdaq Composite) as a play on tech and growth stocks.
But what really is a value or growth stock? That question, raised by GMO, is already dividing the many active value funds available to UK investors when it comes to performance. Some will still bank on energy more than others, while certain names now view the beaten-up tech giants as value plays. Much as its individual position sizes are pretty small, R&M Global Recovery stands out by including US and Chinese tech giants among its biggest positions. To give a different example, the financials and energy-heavy Invesco UK Opportunities (GB0033031153) was the best performer out of its entire sector in 2022 but sits in the middle of the pack so far in 2023.
With those issues in mind, it’s worth asking just how value managers are now positioning – and what value means to you.
