We’ve recently published a white paper with Jupiter, about advisers’ views of value and income investing. Recent wobbles aside, equity markets have mostly roared away during the last decade.  Factors such as low interest rates have particularly favoured growth funds, and value investing has taken something of a back seat. But now we seem to be living with rockier markets, could the time be ripe for a return to value investing?

In our discussions we found a fair number of advisers who weren’t clear about the distinction between these two main styles of investing: growth and value. Maybe that’s not entirely surprising – with value propositions having been out of the limelight for so long. And could we, with hindsight, define a company which has grown strongly in recent years as a previous value stock?

Nevertheless, we found that advisers mostly liked the idea of a disciplined investment strategy of buying quality shares when they are undervalued – the backbone of value investing. And there are several trends that suggest that there should be greater use of value funds.

If economies stall and/or interest rates rise, the prospects for growth stocks will weaken. This could prompt advisers to turn their focus back towards funds with a value tilt. Advisers also tend to view value funds as longer-term investments, which could be more suited to higher-risk buckets within clients’ retirement portfolios.

And while passive has been gaining ground in portfolios, many advisers are waiting to see how index funds perform in more volatile markets before shifting much more of their clients’ portfolios into them. Bottom-up value investing is more about seeking alpha than following the market.

If value investing does start to regain ground, it remains to be seen just how advisers will use these funds in client portfolios. Advisers are more process-driven now than in the past, and investment decisions are increasingly driven centrally by committees and CIPs rather than by individual advisers.

Changes to portfolios do happen, but they tend to take place relatively slowly. About 80% of adviser firms tell us that they do adapt their investment style to reflect market conditions, but most do this pretty infrequently. So any change of style might take a while to filter through.

The white paper is free to download here.

If you have any comments or questions, please get in touch.