For the first time in many years, both growth and value managers have been presented with the opportunity to outperform, according to BMO Global Asset Management’s Rob Burdett. 
The co-head of multi-manager says there has been a pick up in value in most markets over the last year. In the US it’s been over a year that the value index has been outperforming growth.
“It’s less, probably something more like six months in the UK and the continent, Japan is all over the place, but it is happening there as well at the moment,” he added.
Indeed, as the below graph shows, the global value index has outperformed growth this year for the first time since 2011.
Performance of indices in 2016
Source: FE Analytics
The MSCI World Value has returned 28.83 per cent so far in 2016, 3.37 percentage points ahead of MSCI World Growth.
The manager, who runs a number of fund-of-fund products with Gary Potter, says this has been despite a move towards the expensive defensives in recent months.
Burdett said: “That interests us and if you look at the top quartiles at the moment, and we’ve talked about expensive defensives and the quality growth style management, they’re generally still outperforming but now some of the more cyclical bottom up managers are as well.
“So there’s been, for the first time in a few years, two ways to skin a cat this year, two ways to get into that top quartile.”
An example of this is the JOHCM UK Equity Income fund, run by Clive Beagles, which has returned 10.07 per cent so far this year to investors, 2.69 percentage points ahead of the sector.
Performance of fund vs sector and benchmark in 2016
Source: FE Analytics
“It’s been a while, I think he has apologised for his returns recently, but this year he’s outperformed so that’s worked for him.”
The two crown-rated fund, also managed by James Lowen, includes out of favour stocks including Shell and BP among its top 10 holdings.
The fund also includes HSBC and Lloyds Bank, and Burdett says this has been an area value investors have paid particular attention to of late.
Banks have had a volatile 2016, with the FTSE 350 Banks index returning 5.04 per cent so far this year, though it fell by as much as 24.75 per cent in February and was also impacted by the result of the EU referendum.
Performance of index in 2016
Source: FE Analytics
“The other area we are focusing on at the moment is banks, which is where people appear to be completely split,” he said.
“The bulls on banks say they are as cheap as they’ve ever been on a price to book basis they’ve recapitalised, the trend on regulation is slowing and what remains is well known.
“Conversely the view is that regulation is wrong and there’s this systemic risk when looking at Italian banks and the amount of debt they’ve got relative to the bad bank funds set up. When they do come back they will only ever offer utility-like returns, they will never get back to anything like the ratings they had before.”
However, while Burdett says the signs of banks improving and of value funds beginning to outperform is encouraging, he reiterates that the market remains uncertain.
“Does that mean there’s a changing of the guard? Possibly, but it’s too early to say at the moment. It’s the most likely in our opinion for many years, but I wouldn’t want to say it’s our full conviction.”
He points to the Man GLG Undervalued Assets fund, run by FE Alpha Manager Henry Dixon, as an example where this reversion to value has yet to come through.
Despite a surprisingly strong 2015, the fund is in the bottom quartile this year and Burdett says it has been one of the biggest underperformers in his funds.
“They have very specific unsurprisingly value driven approach of investing, they want downside protection from valuations so intrinsic value in the company be it cash, brands, market position, those kind of things.
“And they’re quite price sensitive, so this recovery in value is not specific enough yet. They are still underperforming, but maybe they will be one that starts to get better.”
As a result, it would be wise for investors to remain in both camps (value and growth) and to this end he suggests the Threadneedle Extended Alpha and UK Equity Income funds.
He says they are “much more in the quality growth camp and they are both doing well year-to-date”.
The Extended Alpha fund, run by Chris Kinder, has been a first or second quartile performer each calendar year since 2010, and both funds have been top quartile performers in their respective sectors over one, three, five and 10 years.
Performance of funds vs sectors and benchmark over 5yrs
Source: FE Analytics
As the above graph shows, the £3.5bn, five crown-rated UK Equity Income fund, run by Richard Colwell, has returned 92.53 per cent, 22.02 percentage points ahead of the IA UK Equity Income sector and 28.41 percentage points above the FTSE All Share.
Meanwhile, the £98.6m Extended Alpha fund, has beaten the FTSE All Share by 28.27 percentage points and the IS UK All Companies sector by 23.59 percentage points.