Five value funds to own if the rally continues

Financial markets have been rattled over the past month by rising bond yields and inflationary fears, coupled with the prospect of rising interest rates and a withdrawal of monetary stimulus.

This backdrop has hurt the performance of many growth stocks, which have fallen sharply in recent weeks, pushing the relative performance of value stocks higher.

This has been borne out in the figures, which show over the past year that the MSCI World Value index has made 18.3% while the MSCI World Growth index is up 10.9%.

Performance of MSCI World Value vs MSCI World Growth over 1yr

Source: FE Analytics

For investors who might be worried about their exposure to growth and searching for a way to gain exposure to value, Trustnet asked market experts for their funds of choice.

LF Havelock Global Select

James Sullivan, head of partnerships at Tyndall Investment Management, picked the LF Havelock Global Select fund.

“The fund was launched in 2018 with a philosophy underpinned by a ‘valuation matters’ approach to investing, incorporating one of ‘the’ great value stocks, Berkshire Hathaway, in its top holdings as testimony to what it stands for,” Sullivan said.

“Its ‘quality value’ approach has rewarded investors since inception and notably so during the rotations towards value in the first quarter of 2021 and again more recently.”

He pointed to the fund’s track record: it has ranked it consistently in the first or second quartile of the IA Flexible Investment sector over the past three years.

Performance of fund over 1yr

Source: FE Analytics

Sullivan added: “The policy response to inflationary pressure is likely to perpetuate a prolonged re-rating of some very unloved value orientated stocks and Havelock is well positioned for this.

“Betting the family silver on an extreme binary outcome of the growth versus value trade, at this junction, could result in a feast or famine outcome, whereas Havelock maintain a focus on quality despite being bluntly categorised as value.”

Prusik Asian Equity Income

Ben Mackie, fund manager at Hawksmoor Investment Management, selected Prusik Asian Equity Income fund, managed by Tom Naughton.

Mackie noted that although Naughton “probably doesn’t even regard himself as a value manager”, he has “managed to construct an idiosyncratic portfolio which, on 8x price-to-earnings, trades on a 44% discount to the market, and crucially, is cheap versus its own history”.

Performance of fund over 1yr

Source: FE Analytics

Mackie also noted the portfolio’s “decent” earnings growth, where in 2021 it increased dividends by 6% on 2020 and 14% ahead of its payout in 2019 – equal to a yield of 6.4%.

“Dividends are paid from cashflow so speak to the fundamental strength of the underlying companies, which in turn helps assuage value investing’s classic concerns around avoiding companies in secular decline,” he explained.

Although it has improved in performance during 2021, Mackie places a greater weight on “the presence of a disciplined process” and “the ability to generate alpha over longer time periods”.

“Sometimes the best time to buy a fund is after a period of underperformance, particularly when the margin of safety on offer is so considerable,” he added.

Ninety One Global Special Situations

Darius McDermott, managing director of Chelsea Financial Services selected the Ninety One Global Special Situations fund, managed by Steve Woolley and Alessandro Dicorrado.

“Rising interest rates are not just a UK thing,” McDermott said. “It’s going to happen in the US and other countries too – some have already started raising them. So this fund covers that wider remit and gives investors more opportunities.”

Performance of fund over 1yr

Source: FE Analytics

McDermott also said that this fund was “one of the purest versions of deep value available” and pointed out that, as one of a number of value funds run by the same team, there was a lot of historic data to back up the managers’ track record.

However, he noted: “The fund will underperform if growth comes back, but if value to continues to do well or we go through a period of sharp swings, I think it’s the fund to hold in your portfolio.”

Since the vaccine bounce in November 2020, the fund is up 47.6% vs 28% for the MSCI Value index and 16.9% for the IA Global peer group average.

Jupiter UK Special Situations 

John Monaghan, head of research at Square Mile Investment Consulting and Research picked the Jupiter UK Special Situations fund as his preferred value-exposure.

The fund is managed by renowned UK value manager Ben Whitmore, who has a high conviction, long term, contrarian approach to investing.

“Whitmore has managed money using this approach for the vast majority of his career, which spans over 20 years, and is prepared to persevere with investments despite the potential for continued short-term underperformance,” Monaghan said.

Performance of fund over 1yr

Source: FE Analytics

One difference between Whitmore and his peers is that the manager is “dispassionate about companies and investments” and does not need to meet managers before investing.

“Instead, a stock’s positioning is determined by Mr Whitmore’s view of the quality of the company’s underlying business and the attractiveness of its valuation,” Monaghan said.

He added the resulting portfolio is consistently a “true representation” of this “tried and tested philosophy and processes”.

Monaghan also warned that over shorter time frames the fund can lag the FTSE All Share benchmark and its peers, making it better suited for investors with a longer-term investment horizon.

Dimensional Targeted Value Fund

Nicki Hinton-Jones, chief investment officer at Betafolio, picked the Dimensional Global Targeted Value fund, as her preferred vehicle to gain exposure to value.

The company employs factor tilts within its model portfolios, holding Dimensional funds across its Classic and ESG fund ranges to gain exposure to the value and small premium.

Performance of fund over 1yr

Source: FE Analytics

“Dimensional’s data-driven and systematic approach to capturing premiums continues to impress us. In our Classic range, we use the Dimensional Targeted Value fund, allowing us to double down on the two premiums, small and value, which have been proven to deliver superior returns to investors over the long term.”

The Dimensional Targeted Value fund delivered 18.4% over the past year, compared to 16.6% from the MSCI World Small Cap Value Weighted index.