December 2014 - Value fund managers are never wrong, just early
There are many ways to skin a cat and even more when it comes to investing. The big divide is the difference in the approach of growth and value managers. Growth managers look for companies that are growing rapidly in terms of their market share, earnings and profitability. These are often in growth sectors such as technology and media. Often these companies have lofty valuations in anticipation of those attributes rather than after the fact.
Value managers, on the other hand, are looking for bargains. Companies that are out of favour with investors because they have missed forecasts, business plans have gone awry, or are just not “fashionable” – a problem many “value” stocks had during the TMT bubble at the turn of the millennium.
They like to find companies that also have reasonable balance sheets and cash flow that will keep them solvent. Without this insurance they become what is known as “value traps”. Buying deep value stocks is a long term strategy as the catalyst for improved share price performance is often mercurial, hence the expression “value managers are never wrong just early.”
At Schroders, Kevin Murphy and Nick Kirrage know a bargain when they see one but they can’t find too many right now as valuations get stretched higher and higher. Their Schroder Recovery fund, Elite rated by FundCalibre, and the more recently launched Global Recovery fund – managed with the same investment process - are worth looking at now. Another fund worthy of consideration and run with similar objectives is the GLG Undervalued Assets fund, run by Henry Dixon, which also comes with a FundCalibre Elite rating.
If we are about to get a significant market correction then market psychology tells us that as prices fall most investors will find it difficult to “pull the trigger”, and then when the recovery phase kicks in it becomes even harder to get on board. So better to have some skin in the game now and remember why you bought a recovery fund in the first place.
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Clive Hale, Director - December 2014
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