Over half of value-oriented equity funds have outperformed their peers in the decade since the global financial crisis claimed its biggest scalp in investment bank Lehman Brothers, according to research by FE Trustnet.
As the 10-year anniversary of the collapse of Lehman Brothers approaches on 15 September, markets have since rallied after governments pledged substantial support for the global financial system in the shape of quantitative easing and low rates.
Indeed, the recovery that followed the global financial crisis has been characterised by the stellar performance of growth or momentum trades, with investors preferring companies that are expected to grow faster as opposed to those trading at lower prices relative to their fundamentals.
This has been reflected in the outperformance of growth stocks, with those unloved by the markets lagging behind their quality growth peers over the last decade.
The outperformance of growth companies over value stocks has been widely debated, with investors wondering when – or if – value will eventually make a comeback.
As the below chart shows, with gains of 204.72 per cent over the past decade, the MSCI AC World Growth index has outperformed its MSCI AC World Value counterpart’s return of 136.76 per cent.
Although the trend was reversed in 2016 – when the MSCI AC World Value index delivered a total return of 34.28 per cent compared with a gain of 23.18 per cent for the growth index – the gap between the two investment styles has continued to widen.
Performance of indices over 10yrs
Source: FE Analytics
Given that many investment debates continue to revolve around these competing investment styles, at FE Trustnet we wanted to find out how value strategies have performed over this period, and how they have done relative to their peers in their respective sectors. Or, in other words, to find out whether active stockpicking has helped certain strategies stand out despite the overall underperformance of value.
To do so, we filtered for value, special situations and recovery-labelled investment vehicles in the Investment Association’s different sectors. We were left with more than 70 funds that identify as taking a value approach and have a track record of 10 years or more.
The data showed that 54.8 per cent of these value-oriented equity funds were first or second quartile in the decade since the financial crisis.
IA Global Emerging Markets sector has the best track record, with both of the value strategies first or second quartile.
The IA UK All Companies sector also has a majority of value-oriented funds in the top quartiles, with 15 of the 21 funds first or second quartile.
Elsewhere in the IA Europe Excluding UK sector, we were left with just four value funds with a 10-year track record. Of those, two are second quartile and the other two are third and fourth quartile.
The sector with the highest number of value funds in the third and fourth quartile is IA North America, where almost 80 per cent of the value strategies have underperformed their average peer.
Value funds in the equity sectors by quartile
Source: FE Analytics
Focusing on the IA Global sector, the value-labelled fund with the highest returns is Investec Global Special Situations. The £70.1m fund delivered a 220.62 per cent total return over 10 years, it did so with low volatility. Alessandro Dicorrado and Steve Woolley’s fund has also been top-quartile for one, three, and five years.
The next best performer is the £2.8bn Robeco BP Global Premium Equities, a global large-cap fund overseen by Christopher Hart and Joshua Jones. The team’s investment approach rests on three pillars: valuation, business fundamentals, and improving momentum. Although top-quartile over 10 years, the strategy has been third quartile over one and three years.
The third best IA Global fund is another Investec offering, the £621m Investec Global Strategic Equity fund, led by Mark Breedon. Over 10 years, the fund has delivered a 190.05 per cent total return compared with a gain of 135.26 per cent for its average peer and a 169.47 per cent gain for the MSCI AC World index.
Moving on to the IA UK All Companies sector, the £3.9bn Liontrust Special Situations fund is the value strategy that has delivered the highest returns over the past decade.
The fund is overseen by FE Alpha Managers Anthony Cross and Julian Fosh and holds the maximum number of five FE Crowns. It is also top quartile for volatility and for one, three and five years’ returns. It is up 313.89 per cent, putting it in the top quartile.
With more moderate gains of 211.98 per cent, the £286.1m R&M UK Recovery fund is the second-best value strategy over 10 years. Although top-quartile for returns, Hugh Sergeant’s fund is bottom-quartile for volatility, among the highest in the sector.
Other IA UK All Companies value funds with long track records making it onto our list are Schroder Recovery, Slater Recovery, Jupiter UK Special Situations, Fidelity Special Situations, BlackRock UK Special Situations and Schroder Responsible Value UK Equity.
Top quartile value funds over 10yrs
Source: FE Analytics
The IA Global Emerging Market sector only has two value funds with a long enough track record, but both are top-quartile. Dimensional Emerging Markets Core Equity and UBS Global Emerging Markets Equity made gains of 112.4 per cent and 87.31 per cent respectively.
Looking across all 73 value-oriented funds, the £1.7bn Marlborough Special Situations fund, headed up by FE Alpha Manager Giles Hargreave and Eustace Santa Barbara has delivered the highest returns over the period. It has delivered a total return of 359.78 per cent.
Up by 358.77 per cent, T. Rowe Price US Smaller Companies Equity is next posting the highest returns. The four FE Crown-rated fund is also the only IA North American Smaller Companies strategy that has outperformed its peers over the period.