Income funds, pure value strategies and exchange-traded funds (ETFs) are among the global portfolios that have consistently outperformed their peers when the market is led by value stocks, according to data from FE Analytics.
As investors have retreated from growth stocks amidst fears of rising interest rates and the withdrawal of quantitative easing (QE), value stocks have experienced a sharp period of relative outperformance over the past two months.
Value stocks outperformed growth stocks by one of the widest margins in almost a decade during this time, as the below chart shows.
Performance of MSCI World Value v MSCI World Growth over 2 months
Source: FE Analytics
However, looking at the top funds of the past few months would only give a one-off picture. As such, to find out which funds have managed to deliver outperformance over a longer timeframe, Trustnet looked at the periods where value has beaten growth since the start of 2016.
There have been 26 months over the past six years where value has outperformed growth, and the table below identifies which funds delivered top-quartile returns for most of those periods.
Source: FE Analytics
There were only 28 strategies out of 291 global funds with a six-year track record that delivered top-quartile returns in more than half of the periods where value outperformed growth.
Although these funds did not manage to beat their sector in every month, the vast majority them delivered performance at least above the peer group (in the second quartile) for most of the other months where value outperformed.
M&G Global Dividend was a consistent outperformer during value rallies, achieving either first or second quartile for 24 out of the past 26 months when unloved stocks beat their growth counterparts, the data shows.
The fund is managed by Stuart Rhodes, who is not necessarily a dedicated value manager but avoids over-paying for stocks, which leads to a portfolio with a tilt towards the value style.
The fund’s top holdings however, aren’t what investors would expect to find in a value strategy. It has large overweight positions in companies such as Microsoft, Imperial Brands and Novartis – stocks typically held by quality-growth funds.
There was another notable income fund that featured in the list: Schroder ISF Global Equity Yield. This was another without a pure-value strategy, but it is run by the renowned value investing team made up of Simon Adler, Liam Nunn and Nick Kirrage.
Companies with a strong track-record of paying dividends tend to be hurt less during rotations towards value stocks, which could explain the outperformance of income funds during these periods.
Another notable fund that featured was Ninety One Global Special Situations, managed by Steve Woolley and Alessandro Dicorrado.
It was recommended by experts in a previous story on the funds to own if the value rally continues, where it was described as “one of the purest versions of deep value available”.
The managers take a high-conviction approach to investing, where its top-10 holdings make up almost half (44.9%) of its total portfolio.
It also looks for cheap, out-of-favour companies with potential for recovery and is sector agnostic, as evidenced by its large overweight positions in companies ranging from US technology giant Meta Platforms (formerly known as Facebook) to aircraft leasing firm Aercap Holdings.
The fund with the best track record of top-performance during value outperformance was a sector-specialist fund: Fidelity Global Industrials, run by Ashish Bhardwaj.
It was first quartile for 20 out of the past 26 months where value outperformed growth, more than any other in the list. The strategy has benefitted from its large overweight to stocks in the energy and basic materials sectors – both considered to be in the ‘value’ camp, rather than growth.
One notable feature of the list above was the presence of 10 passive index trackers, or ETFs, that track various broad and specialist indices.
Two notable funds that featured were the Xtrackers MSCI World Value UCITS ETF and BlackRock’s iShares Edge MSCI World Value Factor UCITS ETF, which both track the performance of the MSCI World Value index.
These funds should, in theory, always outperform when value rallies, but whether they make it into the top-quartile is not guaranteed because there are some higher-risk funds that can move more sharply.
SPDR S&P Global Dividend Aristrocrats UCITS ETF – another income fund – also featured. It tracks the highest dividend-yielding companies within the S&P Global Broad Market Index that have increased their dividends in each of the past 25 consecutive years.
One notable outlier in the table above was BlackRock’s iShares Agribusiness UCITS ETF. It tracks the performance of the S&P Commodity Producers Agribusiness Index, which is made up of companies at the front of the natural resource value chain, often tied to the price of commodities.