Mr Potter said different investment styles come in and out of fashion, but he expects a sustained period of strong performance from value type funds, as higher government spending is being promised by politicians across the world, and that should lead to higher inflation, which is the economic scenario in which value investing would typically be expected to thrive.
Among the UK equity value funds Mr Potter’s funds currently own are the Man GLG UK Undervalued Assets fund, and the RWC UK Focus fund.
Ben Yearsley, director at Shore Financial Planning, said the traditional conditions for value funds to do well, including rising interest rates, were not present right now.
But he thinks investors are worried about the potential for a market downturn and as a result are not keen to own the most expensive stocks in a market, and most of those are growth shares.
He recently sold his holdings in the Lindsell Train funds as he worries the fund manager has too much of the capital invested in a relatively small number of companies.
But a chief investment officer at Columbia Threadneedle Investments warned against investing in value stocks, arguing a growth style of investment was still the best option in the current market.
Speaking at a roundtable event earlier this week (November 20), William Davies said investors needed to “be careful” and wary of the “easy conclusion” that investing in cheap value stocks was a smart move.
Mr Davies, CIO EMEA and global head of equities at the fund house, said: “We think growth will still prosper. In an environment of slow growth, with low interest rates and low bond yields growth is still the best option.”
One example of this was the growing sector of worldwide public cloud services, the revenue of which had increased from $220bn (£170bn) in 2016 to $411bn (£318bn) in 2020.
Mr Davies thought this was likely to increase given that cloud services were becoming more entrenched, which would benefit “classic growth stocks” such as Microsoft, Amazon and Alibaba.
Guy Stephens, technical investment director at DFM Rowan Dartington, agreed, adding that many of the so-called opportunities in value were priced cheaply for reasons of “structural long-term decline” rather than being overlooked in the market.
david.thorpe@ft.com & imogen.tew@ft.com
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