Blog: Value will be back as fear retains hold

River & Mercantile's head of UK equities, Hugh Sergeant, explains why the pricing of fear means value investing will return to favour next year.

It has been a difficult time for traditional, value led investors. Attractively priced shares have just been getting cheaper and cheaper, whil expensive shares have kept going up.

The reason for this is simple - fear. While big picture uncertainties abound, investors are happy to pay an increasingly higher relative price for security and at the same time to ignore all lowly-valued shares.

Our view is if you are willing to take a longer-term view then buying a portfolio of today's value investments will be very rewarding.

We all know the short-term future is uncertain; we hear this in the media every day. But at some point fear becomes reflected in share prices. Given how big the bargains are at the moment we think we are getting close to this point of fear being fully discounted.

As Sir John Templeton once said "To get a bargain price, you have to look where the public is most frightened and pessimistic. When you purchase a large amount of future earnings for a low price, you have made a good investment. The only way to accomplish this is to buy when others are selling".

So it has been a difficult time for value led investors, indeed there are relatively few of us still committed to this approach. But those of us who remain steadfast, who truly believe Templeton's words know value will be back with a vengeance, just as it returned after the technology bubble.

Back then investors paid ever higher prices for growth, today it is ever higher prices for safety.