Norwich Union has teamed up with style investing experts, JPMorgan Asset Management (JPMAM), to laun...
Norwich Union has teamed up with style investing experts, JPMorgan Asset Management (JPMAM), to launch an innovative UK equity fund that has the ability to outperform in different market conditions.
Investing in the stock market is one of the best ways to achieve long-term capital growth. But as any experienced investor will testify, although returns can be impressive over time, the journey can be a bumpy one.
One of the key reasons for this volatility is the fact that market leadership tends to switch from time to time between different types of stocks.
For example, at certain times in the market cycle, cheaper, undervalued companies (value stocks) may outperform, while at other times more expensive, faster growing companies (growth stocks) will lead the way. For investors, this segmentation of markets between different types of stocks can lead to volatile returns and constrain overall portfolio performance.
This is because most investment funds, whether stated or not, follow specific investment styles - some have a bias to growth stocks, others are biased to value, while many drift between growth and value depending on which style is in fashion.
The best of both worlds
Although growth and value stocks have tended to outperform over the long term, it is clear that a lack of exposure to either style will lead to greater portfolio volatility. A value-biased fund will not perform well when growth stocks are in fashion, and vice-versa. But by combining the two styles, investors can smooth stock market volatility and even boost long-term returns.
The Norwich UK Growth & Value fund is designed to do just that. By investing half of its portfolio in the best growth stocks and half in the best value stocks that are identified by a proven investment process, the fund is designed to outperform the UK stock market in both value and growth cycles, thereby smoothing investment returns over the long term.
Research shows that style investing works. Graph 1 represents the performance record of US value stocks (the blue bars) and growth stocks (the yellow bars) in each year for the past 52 years. When the blue bars are pointing up, value is outperforming as an investment style and when they are pointing down, value stocks are underperforming.
The same goes for the yellow bars - when they are pointing up, it suggests that growth is outperforming, while when they are pointing down, growth stocks are underperforming.
Graph 1 shows that in just about every year that value stocks underperform, growth stocks outperform, and vice versa.
Taking 1999 as an example, the worst ever year for value investors at the height of the dotcom boom was the best ever year for growth investors. Although past performance is not always a guide to future performance, history suggests that one source of return will act as an insurance policy for the other.
Therefore, while combining growth and value stocks in a single fund may not achieve the returns that a pure value fund can achieve in a value market, or a pure growth fund can achieve in a growth market, investors are likely to achieve a much greater consistency of return. This fact is fundamental to the philosophy behind the new Norwich UK Growth & Value fund.
Founded on proven expertise
The Norwich UK Growth & Value fund is managed by JPMAM - the ideal partner for such a fund given they have been a leader of style investing in the UK and Europe, and has an impressive track record of strong performance from its style portfolios.
JPMorgan Asset Management also has the proven expertise to run style funds, having developed an investment process specifically designed to maximise returns by uncovering pricing anomalies created by investor behavioural biases.
Behavioural finance theory demonstrates that consistent investor behavioural patterns create persistent 'anomalies' and 'mis-pricing' opportunities that are seen clearly in the performance of different stock market styles, such as growth and value stocks.
As we've seen, combining the best growth and value stocks in a single portfolio enables each style to complement the other and produce consistent outperformance.
Using JPMAM's disciplined process, the Norwich UK Growth & Value fund gives investors access to an innovative fund that can outperform in different markets to deliver the consistency of return that your clients desire.
For further information on this fund opportunity, which launched on 6 March 2006, please contact your Norwich Union consultant or visit www.adviser.norwichunion.com/growthandvalue
