Partner Insight: Markets have observed a trend towards quality growth over the past decade driven by the fact many investors sought growth in a world of secular stagnation. This combined with monetary policy initiatives such as falling interest rates have allowed growth stocks to thrive.
Yet there are now signs that the regime that has existed since the financial crisis is changing, particularly with the onset of quantitative tightening and the normalising of interest rates in the US and UK.
"As and when the profit cycle peaks, we believe it might present an attractive entry point for the contrarian minded value investor," explains Ian Lance, manager of the TM RWC UK Equity Income Fund. "This is because as the cycle peaks, companies that have been pulling out all the stops to keep earnings growth going often begin to struggle and have to re-set profit expectations. This can lead to a sharp price decline, sometimes to a change of management and strategy, and occasionally a financial restructuring as well."
In the video below, Lance and his co-manager on the fund Nick Purves discuss the intricacies of value investing and how it has evolved over the past decade.