With Black Friday upon us, Trustnet asked 10 fund managers and strategists to highlight the areas and markets where they are finding the best value.
The lower end of the bond quality scale
Despite more bearish outlooks from organisations such as the International Monetary Fund, T.Rowe Price portfolio manager Ken Orchard (pictured) said the firm had recently upgraded its growth forecasts for the US and Europe this year. 
“One of the most likely manifestations of this could be a steepening of the yield curve as future inflation expectations rise,” he said. “This will probably mean long‑duration bonds, such as high‑quality sovereigns, will begin to perform less well.
“Investment-grade companies in stable countries may also begin to fare worse than other asset classes as optimism returns.”
As such, Orchard is finding opportunities in the lower-grade bonds that investors have been avoiding for the past year, such as single-B and CCC-rated high yield bonds, which said cold start to outperform higher-quality credit.
The firm taking advantage of how you pay for your coffee
Mark Baribeau, portfolio manager of the PGIM Jennison Global Equity Opportunities fund, said disruption in the payment space is creating a compelling investment story.
“Walk into any coffee shop and notice how many customers pay with a credit card or phone instead of cash,” he said. “Digital payments are rising alongside on-demand consumption, a shift offering tremendous investment opportunities.
“Low barriers to entry, convenience and high security are key drivers of this trend.”
As such, Baribeau highlighted European-based payment processor Adyen.
“Profitable since 2011, the company counts among its 3,500 customers heavyweights like Uber and Facebook and is expanding to emerging markets,” he noted.
The fastest-growing global asset class
The listed infrastructure universe has grown from around $400bn in 1995 to around $3.9trn. As the governments have sought private sector participation, the number of opportunities has grown rapidly, said Jeremy Anagnos, lead manager of Nordea’s Global Listed Infrastructure strategy.
“The predictable cash flows and steady income offered by these tangible assets are increasingly appealing to investors, who continue to witness inflation eroding the minimal returns offered by low-yielding fixed income,” he said.
“Listed infrastructure cash flows and dividends benefit from contractually driven, inflation-linked revenue growth. In addition to its inflation-busting characteristics, listed infrastructure has forged a reputation as being an attractive late-cycle destination.”
Cheap emerging market currencies
With the exception of a brief respite in 2017, emerging market currencies have been out of favour since 2013, according to Rob Drijkoningen, co-head of emerging markets debt at Neuberger Berman.
Nevertheless, there are signs that the currencies are now too cheaply valued.
“Fundamental exchange rate models, which take into account metrics such as current account and terms of trade, now suggest the majority are trading cheaply,” he said.
“Improvements in country fundamentals, such as reforms in Brazil or restrained fiscal and monetary policies in Russia, have also helped to improve valuations.”
Attractive-looking European cyclical stocks
EdenTree Investment Management’s Chris Hiorns – manager of the Amity European Fund – said that many cyclical value sectors look attractive at the moment.
“Areas exposed to automotives and capital goods are suffering from weakness in Europe and the growth slowdown in China,” he explained. “High yielding defensive sectors, such as utilities and telecoms, also look attractive at current valuation levels.
“In the case of a potential trade deal between the US and China leading to a revival in global economic sentiment and monetary policy ‘normalisation’, European equities would appear very cheap, although at the moment they are suffering from the negative interest rate environment.”
Hiorns (pictured) added: “Cyclical companies that currently look interesting include Rexel, Randstad and Smurfit Kappa.”
The most disruptive investment theme of the past 50 years
Jerry Thomas, head of global equities at Sarasin & Partners, said the rise of automation since the 1970s could have a transformative effect on unloved industrial companies.
“Some of the most disruptive changes are happening at industrial companies, which are benefitting from the falling costs of processing power and advances in robotics, communications and software,” he noted.
“This is creating niche industries such as machine vision, laser processing and industrial software.
“Because the market struggles to pigeonhole these companies as ‘technology’ or ‘industrial’, they have potential to be misunderstood and consequently mispriced. For thematic investors, this represents a fertile hunting ground.”
Income-paying small- and mid-caps
The growing number of dividend-paying small and mid-cap stocks going under the radar are trading at some attractive valuations relative to their larger, more well-known peers, according to Brendan Gulston, co-manager of the LF Gresham House UK Multi Cap Income fund.
“One hidden gem is Vianet Group, a UK market-leading data services business operating in the pub management and vending machine sectors,” he said.
“Its proprietary equipment helps companies optimise yield and limit waste. Vianet is a classic example of a mature smaller company operating in niche spaces. For 12 years, it has delivered strong income, having paid a consistent annual dividend.”
One of the UK’s few genuinely world-class companies
Tony Yarrow, co-manager of the Wise Multi-Asset Income fund, said one of the biggest undervalued opportunities for him currently is Rio Tinto which is “without question one of the UK’s few genuinely world-class companies”.
“Its main activity is mining iron ore in Western Australia. At the current world price of $86 a tonne, the core business is highly profitable,” he explained.
“Moreover, global mining giants have a deep economic moat – it would be almost impossible to set up a world-class iron ore mine from scratch today.”
Yarrow said the shares were currently trading at a “derisory” 6.9x price-to-earnings (P/E) multiple with a yield of 7.2 per cent.
“The reason behind the rating appears to be the almost unanimous belief a severe recession is imminent,” said Yarrow.
“However, there appear to be two possible outcomes. Either there is a global recession, in which case the authorities will be forced to provide fiscal stimulus, which could benefit miners, or there will not be a recession for a while, in which case miners are likely to continue doing well.”
Auto parts, the epicentre of cyclicality
One area interesting SYZ Asset Management’s Roberto Magnatantini (pictured) – portfolio manager of the OYSTER Global High Dividend Fund – is the auto parts industry, where a recent downturn has created an attractive entry point.
“Auto parts are the epicentre of cyclicality, a sector subdued by consumer gloom and a retrenchment from spending on big-ticket items,” he said.
“Yet despite headwinds, there are some strong underpinnings for the European economy. New figures suggest unemployment in the EU is at its lowest level since 2000.”
One company he likes is French firm Valeo.
“The company suffered from both aversion to value stocks and gloom over cyclicals, but remains a high-quality company trading on strong fundamentals. It has an attractive forward P/E ratio of 12.4x and dividend of 3.89 per cent,” he explained.
Brexit-hit UK property
Calum Bruce, investment manager of Ediston Property Investment Company, said that while the UK property market has continued to experience lower transaction volumes – driven by political and economic uncertainties and Brexit, in particular – there still remains a lot of value.
“Assets that are well-located, trade well and let off affordable rents are more desirable,” he explained. “Select retail warehouse assets are faring better, with a favourable supply/demand equation.”
Listed property trusts also represent good value, Bruce said, with many sitting on discounts of around 20 per cent to net asset value (NAV).