Some fund managers look to play both sides of the cycle by blending value and growth strategies to take advantage of different market conditions.
Value stocks tend to underperform at the peak of the market and often fall harder during sell-offs; however, they tend to outperform strongly during rebounds.
On the other hand, growth investors do better when the market is rising more steadily.
Performance of indices over 10yrs
Source: FE Analytics
Some managers prefer to hold both value and growth stocks at all times, while others change their weighting to each style depending on their market outlook.
Here are four managers who combine value and growth strategies when running their funds.
Julie Dean – Cazenove UK Opportunities
One of the best examples of a fund that uses both a growth and value approach is FE Alpha Manager Julie Dean’s Cazenove UK Opps.
Dean (pictured) attempts to react to changes in the business cycle to rebalance her exposure to growth and value stocks. Back in June 2011, for example, she told FE Trustnet that she was putting more of an emphasis on valuations, because the strong run of cyclical stocks and relative underperformance of defensives had made the latter very cheap.
This way of investing has been very successful, enabling her to beat both the IMA UK All Companies sector and FTSE All Share index in each of the last five calendar years.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
Dean’s fund requires a minimum investment of £1,000 and has an OCF of 1.58 per cent.
George Luckraft – AXA Framlington Equity Income
Bestinvest’s Jason Hollands says the first manager that comes to mind when looking for a blended strategy is AXA Framlington’s George Luckraft.
"One of the most clear-cut examples of a fund that seeks to combine both growth and value situations is the AXA Framlington Equity Income fund," Hollands said.
"At his previous firm, ABN AMRO, George pioneered a distinctive barbell approach to equity income investing that combined traditional higher-yielding equities, often selected on the basis of valuation, with lower-yielding growth stocks to boost total overall returns."
"The formula worked well through the 1990s, but over the last several years it has disappointed."
The £141m fund is third quartile over one, three and 10 years and bottom quartile over five; however, it has beaten the FTSE All Share over three years.
Over the last decade, the fund has made 124.32 per cent, while the sector and index have gained 140.53 per cent and 152.93 per cent, respectively.
It is yielding 3.84 per cent.
Among the portfolio’s top-holdings are UK income-paying giants GlaxoSmithKline, Royal Dutch Shell and British American Tobacco.
The fund also features cinema operator Cineworld Group and sausage skin and cosmetics company Devro in its top bets.
Its highest weighting is to financials, at 24.86 per cent.
AXA Framlington Equity Income requires a minimum investment of £1,000 and has an OCF of 1.61 per cent.
Leigh Harrison and Richard Colwell – Threadneedle UK Equity Income
The five crown-rated Threadneedle UK Equity Income fund is another equity income portfolio that is run with an eye on both value and growth. It is headed up by Richard Colwell and FE Alpha Manager Leigh Harrison.
The £1.8bn fund has outperformed both the IMA UK Equity Income sector and the FTSE All Share over one, three, five and 10 years.
Over the last decade, the fund has made 176.4 per cent compared with 140.53 per cent from the sector and 152.93 per cent from the index.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
It is yielding 3.6 per cent.
The usual suspects in the UK equity income space dominate the fund’s top-10 holdings, although there is an equal exposure to both defensives and cyclicals.
It is also evenly weighted between financials and healthcare, while utilities and oil and gas have a similar exposure as well.
The fund requires a minimum investment of £2,000 and has an OCF of 1.62 per cent.
Chris Rice – Cazenove European
Hollands points to Cazenove’s Chris Rice as a good example in the IMA Europe ex UK sector, because he has consistently blended a value and growth strategy to achieve long-term outperformance in his European fund.
"Rice adjusts his investment approach through different phases of the business cycle," he said. The £951.3m fund has beaten the IMA Europe ex UK sector and the FTSE Europe ex UK index over five and 10 years, although it has faltered of late, performing slighting below both measures over one and three years.
The fund’s highest weighting is to financials, with Credit Suisse and French bank BNP Paribas in its top-10 holdings.
It is yielding 1.2 per cent.
The fund requires a minimum investment of £1,000 and has an OCF of 1.61 per cent.