'Value' as an investment style has rarely been cheaper
PARTNER INSIGHT: Veteran fund managers Ian Lance and Nick Purves explain how they are hoping to take advantage of current valuation opportunities in the market with the launch of the TM RWC UK Equity Income Fund.
Ian Lance and Nick Purves manage circa £3bn of assets across a number of equity income strategies at RWC, and together have been purveyors of value investing for most of their careers. They previously worked together on the Schroder Income and Income Maximiser Funds from 2000 until 2010 where the pair demonstrated a long track record: a mandate managed by Nick since 2000, and jointly with Ian since 2007, has produced gross outperformance of 3.1% p.a. since inception.1
The duo are now returning to the value investing space with the launch of the TM RWC UK Equity Income Fund. The fund, launching on 4 October, will search for value by investing in fundamentally ‘sound' businesses that are out-of-favour and trading below their intrinsic value. This usually occurs when a company or industry experiences a temporary dislocation that investors overreact to.
The launch of the fund comes in response to investor demand, with the notion of a turnaround in value's fortune strong, following years of underperformance. Indeed, Purves and Lance believe the current overvaluation of ‘quality' growth represents one of the biggest risks in the market.
"It is well known that investors tend to extrapolate trends such as rising or falling earnings. What investors forget is that, on average, growth rates tend to mean revert." explains Purves.
"Our experience of investing has taught us that nothing goes on forever and eventually trends usually reverse. As patient, disciplined investors we want to benefit from the opportunities that appear along the way. There is already evidence in the marketplace that suggests ‘value' as an investment style has rarely been cheaper."
The importance of value as a style of investing has been further heightened by the fact many fund managers have shifted styles in recent years, resulting in a significant mismatch between managers' stated style and a fund's actual style as defined by its return pattern. Data shows a large majority of funds have - intentionally or not -aligned themselves to a growth style of investing over the past decade; leaving relatively few genuine value funds in the UK universe (see pie chart).
"We have a market in which growth has outperformed value but the difference in valuation between the two styles is now at extreme levels," says Lance. "Despite this, the majority of money in the UK is still being managed to a growth style."
Click here to read more about Nick Purves and Ian Lance's unique approach to ‘intrinsic' value investing and how they have overcome challenges facing value investors in recent years.