An FE Trustnet article earlier this morning noted that growth funds have outperformed their value-orientated rivals over recent years, though many market commentators expect that trend to reverse sooner rather than later.
According to FE Analytics, the MSCI AC World Value Index has consistently underperformed the MSCI AC World Growth index on a relative basis since the global financial crisis.
Relative performance of indices over 10yrs
Source: FE Analytics
It is a similar story nearly everywhere you look in global markets as well, with FE data showing that growth stocks in the UK, US, Europe, Japan and emerging markets have all vastly outperformed over the past five years.
However, Premier’s Simon Evan-Cook told FE Trustnet that he was planning on upping his exposure to deep value funds over quality growth funds – those which focus more on high quality, unindebted and cash generative companies with strong franchises rather than valuation.
Of course, backing a manager who is seeking to own stocks that are generally disliked by the wider market takes a lot of patience, but Evan-Cook believes these types of funds will come into their own in the not-too-distant future.
Currently, Evan-Cook is pairing up growth and value funds in his five crown-rated Premier Multi Asset Global Growth fund to cover the bases. Here, he highlights the value funds from around the world he has been adding to during the recent market turmoil.
Investec UK Special Situations
Evan-Cook and the Premier multi-asset team use a variety of UK value funds (such as GLG Undervalued Assets and Schroder Income) but one which they have been buying recently is Investec UK Special Situations, which has gone through a very tough period of late.
The £1.1bn fund is headed-up by Alastair Mundy (pictured), who is one of the most contrarian managers in the UK equity space as he will generally only hold companies whose share prices have fallen 50 per cent from their peak. 
This strategy has led him to some very out of favour areas of the market, with the likes of Shell, BP, Lloyds, RBS and Tesco all featuring in his top 10. As can be imagined, such a style has hurt performance over recent years.
Investec UK Special Situations is underperforming over one, three and five years after its bottom quartile losses in 2014 (which was caused by a high weighting to cash, a put on the S&P 500 and buying into supermarkets too early) and 2015.
Nevertheless, Mundy has a decent long-term track record thanks to the fund’s performance during and immediately after the financial crisis.
FE data shows, for example, it is sitting comfortably ahead of the IA UK All Companies sector and its FTSE All Share benchmark since Mundy took charge in August 2002 with returns of 211.79 per cent. It is also top quartile for its risk-adjusted returns, annualised volatility and maximum drawdown over that time.
Performance of fund versus sector and index under Mundy
Source: FE Analytics
There are also signs that the manager is becoming more bullish on his own strategy as his cash weighting has come down from more than 12 per cent in May to its current weighting of 2 per cent.
The fund has an ongoing charges figure (OCF) of 0.85 per cent.
Fidelity American Special Situations
In the previous article, Tilney Bestinvest’s Jason Hollands said the US is an area where he thinks value will really work over the longer term. For his exposure, Evan-Cook has turned to Angel Agudo’s Fidelity American Special Situations fund.
The portfolio is run along very similar lines to FE Alpha Manager Alex Wright’s Fidelity Special Situations fund (as can be imagined) and therefore follows the same process which was implemented by star manager Anthony Bolton.
As a result, Agudo looks to invest in companies that are undervalued, either because they are out of favour or little value is given to their recovery potential.
He took charge of the £680m fund in December 2012 and FE data shows it sits comfortably in the IA North America sector’s top quartile over that time with gains of 75.36 per cent. More importantly, however, it has beaten the S&P 500 over by 10 percentage points.
The fund, which currently holds 8.2 per cent in cash, beat the sector and index in 2013 and 2014 but is narrowly behind the index in 2015. It has also been top quartile for its alpha generation relative to its benchmark, its annualised volatility, maximum drawdown and risk-adjusted returns.
Its OCF is 0.95 per cent.
The best performing funds in the European equity space tend to be those which focus on growth companies, with portfolios run by the likes of Jupiter and Columbia Threadneedle ruling the roost over the past decade.
However, to find a value fund, Evan-Cook has stepped off the beaten the track and has turned to the EP European Opportunities fund, which sits in the offshore universe.
The €277.9m fund has been managed by Dale Roberston since its launch in September 2005 and his aim is, by using a benchmark-agnostic approach, to provide an attractive real long-term total return by investing in undervalued securities throughout Europe excluding the UK.
For example, Robertson’s largest sector weightings are oil & gas, banks and industrials. While the manager has decent exposure to core markets such as Germany and France, he also holds more than 20 per cent of his assets in peripheral markets like Italy, Spain and Ireland.
According to FE Analytics, the fund has returned 108.6 per cent in sterling terms since its launch, meaning it has beaten its MSCI Europe ex UK benchmark by close to 20 percentage points. That means it would sit in the second quartile of the IA Europe ex UK sector over that time.
Performance of fund versus sector and index since launch
Source: FE Analytics
While the fund has been volatile, it has a far lower maximum drawdown than the IA sector and its benchmark since its launch, thanks largely to its performance during falling markets such as 2008 and 2011 when it protected its investors far better than its average peer.
Its long term-outperformance has been eroded somewhat by its losses in 2014 and so far in 2015, though.
EP European Opportunities has an OCF of 0.84 per cent.
Evan-Cook says that Man GLG Japan Core Alpha is by far the best value-orientated fund in the IA Japan sector.
The £1.7bn fund is headed up by Stephen Harker, who takes a contrarian approach to the market as he focuses on companies he believes are trading on cheap valuations compared to the company's asset base.
This means the fund is set up far differently than many of its peers with Harker currently overweight the likes of banks, iron and steel companies and mining stocks.
Though his contrarian approach has led to periods of underperformance, Man GLG Japan Core Alpha has been the sector’s second best performers since Harker took charge in January 2006 with returns of 70.01 per cent. Its Topix benchmark has gained just 27.41 per cent over that period.
The fund has also been one of the sector’s most consistent performers, turning in top quartile numbers in 2006, 2007, 2008, 2009, 2010, 2013 and so far in 2015.
This means GLG Japan Core Alpha has had the lowest maximum drawdown in the peer group under Harker as well as the second best risk-adjusted returns and alpha generation relative to its benchmark.
Man GLG Japan Core Alpha has an OCF of 1.11 per cent.
A great source of frustration for Evan-Cook is the genuine lack of value funds within the IA Global Emerging Markets sector and therefore his search for a portfolio within his Premier Multi Asset Global Growth fund which can take full advantage of a cyclical upswing in the asset class is ongoing.
In the Asian market, though, he is a big fan of Jonathan Pines’ Hermes Asia ex Japan Equity fund.
Unlike the majority of the sector, which follows the Aberdeen/Stewart Investors quality growth approach, Pines has managed to considerably outperform by focusing on companies he believes to be undervalued.
According to FE Analytics, the now $1.4bn fund has returned 59.06 per cent since its launch in November 2012, meaning it has been the best performing portfolio in the IA Asia Pacific ex Japan sector and has beaten its MSCI Asia ex Japan benchmark by nearly five times.
Performance of fund versus sector and index since launch
Source: FE Analytics
The manager views risk as the permanent loss of capital rather than volatility and this means that while the fund has performed very well, it has posted some large drawdowns.
A good example is this year as while the fund is up 6 per cent in 2015, it lost close to 30 per cent between April and August’s ‘Black Monday’ – a period where investors capitulated on emerging markets as a result of concerns out of China.
Currently, Pines is overweight sectors such as consumer discretionary, industrials and materials and is even overweight mainland China – highlighting his contrarian approach.
Hermes have taken steps to limit flows into the fund due to potential capacity constraints, but it is still available on certain platforms.
Its OCF is 0.86 per cent.
