The past 10 years have seen growth investing significantly outperform value but now could be an opportune time to add value to a portfolio, according to Tilney Investment Management Services managing director Jason Hollands. 
Several factors have made the last decade a conducive one for growth investing, including the ever-expanding dominance of tech companies, ultra-loose monetary policy and the rise of passive investing.
However, value investing has beaten growth over the very long term – 40 years or so – leading investment commentators to ask when the style might bounce back. The prospect of a slowdown in global growth is one factor that many believe could aid value.
Given this backdrop, Hollands recommends five funds to a portfolio alongside growth funds.
Fidelity Special Situations
Firstly, Hollands shines a light on the £3bn Fidelity Special Situations fund, which has been run by FE Alpha Manager Alex Wright for the past five years. Past managers include Anthony Bolton and Sanjeev Shah.
Wright describes his process as being 90 per cent bottom-up (using a wide range of methods to pick stocks, including fundamental analysis, company meetings, quant screens and technical analysis) coupled with a sector/macroeconomic overlay.
“Despite a generally tough environment for value managers over this period, the fund has achieved top decile performance in the UK All Companies sector,” Hollands said. “Wright is a contrarian manager often buying stocks that are out of favour with the market but where he perceives the risk of further downside to be limited.”
Performance of fund vs sector and index under Wright
Source: FE Analytics
The fund’s holdings typically fit into four categories: turnarounds, or companies that have performed poorly but have early signs of improvement; unrecognised growth, where growth stocks are trading on relatively low valuations; hidden jewels, or businesses that have divisions with potential not fully recognised by the market; and corporate activity potential, where firms have with an above average chance of being taken over.
Its largest sector exposures are to financials, industrials and oil & gas, while op holdings include oil companies Royal Dutch Shell and BP, Swiss healthcare firm Roche and Dublin-headquartered international building materials group CRH.
Fidelity Special Situations has ongoing charges figure (OCF) of 0.91 per cent.
Jupiter UK Special Situations
The second fund Hollands recommends is the £2bn Jupiter UK Special Situations fund, which is managed by Ben Whitmore. The manager has a contrarian, value investment style and looks for good companies whose share prices do not reflect their full potential and worth for his predominantly blue chip portfolio.
“Unusually for a value manager, he also looks for quality characteristics such as strong balance sheets, aiming to reduce the risks of falling into ‘value traps’ i.e. buying into companies that are cheap because they deserved to be as they are of are poor quality,” Hollands said.
Performance of fund vs sector and index under Whitmore
Source: FE Analytics
Whitmore’s process makes use of two screens to analyse the investment universe: a Graham & Dodd 10-year P/E measure (which screens for value) and a Greenblatt screen (which assesses value and quality). Hollands said these two screen are “largely complementary”.
The fund has made a top quartile return since Whitmore took over in November 2006. Hollands added: “Since taking on the product… Whitmore has consistently achieved levels of volatility significantly lower than the broader market and other managers operating in the UK value space, whilst having offered protection during stressed market environments.”
Jupiter UK Special Situations has an OCF of 0.76 percent and is currently yielding 3 per cent.
RWC Global Horizon
Moving from the UK to global equities and Hollands’ third pick is RWC Global Horizon, managed by Louise Keeling. She joined RWC Partners in 2013 and establish the boutique fund group’s long-only global equities team.
The fund aims to generate alpha over a continuous five-year period relative to the benchmark by investing in global equities through what Hollands calls a “contrarian and very distinctive” approach.
“Keeling looks to invest in companies with an improving return on capital invested. These are often operating in industries where capital is being withdrawn but where consequently the competitive environment improves for those firms who are the surviving players,” he said.
Performance of fund vs sector and index since launch
Source: FE Analytics
“She looks to invest in companies that are trading at discounts of 50 per cent or more to their intrinsic value, with preferred measures being enterprise value and free cash flow.”
The $269.7m fund currently has 66 stocks which are taken from a cross-section of the market capitalisation spectrum. Top holdings include US cable-TV and media firm Charter Communications, US railroad operator CSX, South African metals firm Impala Platinum and plant feed company Scotts Miracle-Gro.
RWC Global Horizon has a 1.15 per cent OCF.
Invesco FTSE RAFI US 1000 UCITS ETF
For the US, Holland takes a break from actively managed funds – given the well-known challenges facing them in this market – and recommends the passive Invesco FTSE RAFI US 1000 UCITS ETF.
“Many investors are sceptical about investing in the US market with active managers, preferring low S&P 500 index trackers,” he explained.
“Over time the latter have become very “growth” biased, reflecting the rise of the large FANG stocks. An alternative approach to this, but with a greater value bias, is this exchange trade fund.
Performance of fund vs sector since launch
Source: FE Analytics
The ETF offers exposure to a basket of the 1,000 largest US companies but stocks are ranked based on four fundamental factors: revenue, cash flows, dividends and net assets, rather than being weighted on market capitalisation like a traditional tracker.
“In practice this provides diversified US exposure that still includes ‘growth’ companies but is skewed much towards more businesses with greater value and defensive characteristics,” Hollands added.
Invesco FTSE RAFI US 1000 UCITS ETF has ongoing charges of 0.39 per cent.
LF Morant Wright Nippon Yield
For his final value fund pick, Hollands looks to Japanese equities – noting that Japan has historically been a market where value investing has worked well even though this has not worked out over the past decade.
He opted for the £581.2m LF Morant Wright Nippon Yield fund, which aims to deliver long-term income growth. This is run by specialist Japanese equity boutique Morant Wright, which has a strong valuation discipline as part of its stock selection process.
Performance of fund vs sector and index since launch
Source: FE Analytics
“The team focus on Japanese companies which are well capitalised with strong balance sheets and are trading at a discount to intrinsic value,” Hollands added.
“The managers also look for companies with low debt to equity and high interest cover. Their investible universe typically consists of 300 companies, which are followed closely as valuations change over time.”
Launched in October 2008, LF Morant Wright Nippon Yield has an OCF of 1.16 per cent and is yielding 2.74 per cent.