Why value shares can keep outperforming growth shares

TL;DR

Investing in cheap, undervalued stocks has historically yielded higher returns than investing in expensive, fast-growing stocks.

Transcript

hello and welcome to latest Insider interview Our Guest today is Roberto Barr manager of the Schroeder Global sustainable value Equity Fund Roberta thank you very much for coming to the studio my pleasure thank you for for having me Sam you run a value fund you're looking for cheap unloved shares why is that the right way of picking stocks why shou... Read More

Key Insights

• 👍 Over the long term, value investing has proven to be a successful investment strategy, delivering substantial returns.
• 🍉 Short-term underperformance in value stocks should not overshadow the historical performance and potential for market turnarounds.
• 🔬 Sustainable value investing combines the principles of value investing with environmental, social, and governance (ESG) considerations.
• 👶 Value stocks that have passed their prime can still present investment opportunities, particularly if they have the potential for reinvention and cash for new ventures.
• 🔬 Investing in a sustainable value fund allows for value investing while aligning with personal ethical considerations.
• ❓ Excluding certain sectors in a sustainable value portfolio does not significantly hinder the potential for outperformance.

Questions & Answers

Q: Why should investors choose cheap, undervalued shares over expensive, fast-growing ones or passively investing in the entire market?

While investing in growth stocks may yield high returns in certain periods, value investing has historically outperformed in the long term. Value stocks have the potential to deliver spectacular returns, as demonstrated by their performance over time.

Q: Why hasn't value investing performed well over the past decade compared to giant tech stocks?

There are several reasons for value underperformance, including the dominance of tech stocks in the market and their increasing valuations. However, value investing has still delivered positive returns, and the potential for a market turnaround makes it a prudent investment strategy.

Q: Why is the flat performance of the sustainable value fund not considered a positive return?

While a flat performance may seem subpar, it is important to assess the fund's performance relative to the benchmark and its purpose as a sustainable value fund. The exclusion of oil and gas stocks may affect short-term returns but aligns with the fund's sustainable investment objectives.

Q: Does excluding certain sectors limit the fund's potential for outperformance?

Excluding sectors such as tobacco, gambling, alcohol, and oil and gas reduces the investment universe but still allows for significant outperformance. Sustainable value funds have shown a historical outperformance of around 5.0% per annum, which is not statistically significantly different from unrestricted value funds.

Q: What sets the sustainable value portfolio apart from the global recovery portfolio?

The sustainable value portfolio has similar valuations and sector allocations to the global recovery portfolio, with the exception of not holding oil and gas stocks. The sustainable value portfolio includes ESG-leading companies in areas such as telecom and healthcare, compensating for the exclusion of certain sectors.

Q: Are there any new additions to the portfolio that are expected to perform well in the short term?

While the portfolio is relatively new, recent market movements have allowed for the addition of exciting companies like Verizon. While it is difficult to predict short-term performance, the portfolio's long-term investment horizon suggests potential for favorable returns.

Q: How many stocks are on the backup list for potential investment, and which sectors are you excited about?

The backup list includes stocks that are considered interesting but have not yet reached the desired valuation. Currently, the list is longer due to market movements, particularly in the tech sector. The fund is keeping a close eye on attractive companies that may become eligible for investment.

Summary & Key Takeaways

• Over the long term, value investing has consistently outperformed growth investing, delivering significant returns.

• While value investing has underperformed in recent years, it is important not to overemphasize the significance of this short-term trend.

• Value investing can provide significant returns when markets turn, and there is still potential for value stocks to reach mean levels compared to growth stocks.