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The value rally – are investors right to be bullish?

For Sébastien Saba, head of portfolio management at Meeschaert family office in Brussels, there’s quite a simple answer to this question. “We seem to be entering a new phase in the cycle, ridding ourselves of old habits,” he says. One of these old habits is investors’ addiction to quality stocks, combined with a wariness about value stocks. “Value has underperformed for the past few years, and I believe the change in the cycle is going to benefit value stocks as they have been so unpopular.”

And Saba has been putting his money where his mouth is. “We have been adding money to value funds for some of our clients.” One of the funds he is talking about is the M&G European Strategic Value fund. This fund is an interesting case: it has closely tracked the MSCI Europe for much of the past two years, but has strongly outperformed the index since 9 November, the day the world woke up to the unexpected reality of a Donald Trump presidency.

  

Trump boost

Though value stocks had been outperforming the wider market for some time before Donald Trump’s election, it’s this occasion that has sparked a true value mania. Both US and European value funds saw net inflows in excess of €1bn in November alone.

“Markets are anticipating Trump’s alleged policies,” says Jaap Bouma, senior portfolio manager at the Dutch wealth manager Optimix. There is a strong market consensus that Trump’s policies will reinforce a nascent trend of reflation and stronger economic growth. Historically, such a backdrop has coincided with value stocks outperforming growth equities.

Bouma is one of these investors who has been buying into the value theme. “We started 2016 with equal weightings to the value and growth managers in our offensive portfolio, but have tried to create a a value tilt over the past few months. I think this is a global trend which is going to persist through 2017.”

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