PARTNER INSIGHT: Ian Lance and Nick Purves, portfolio manager of the TM RWC UK Equity Income Fund, discuss the opportunity shift from growth to value after ten years of underperformance.
Since the start of the US stockmarket recovery in 2009, growth stocks have been deemed the ‘place to be'. Ultra-low interest rates and ongoing central bank support for close to a decade boosted markets significantly, and pushed investors towards those companies that had the potential to grow faster than the market. It is no surprise therefore that growth stocks have outperformed most other styles of investing and is currently experiencing one of the longest rallies on record.
Yet the continued - at times unjustified - rise of growth in recent months has begun to concern some investors. A deeper dive into the fundamentals of this sector suggests it is at a turning point for the first time in over a decade.
"There are moments in everyone's investing career - sometimes obvious at the time, sometimes only in hindsight - which are game changers," says Ian Lance, portfolio manager of the TM RWC UK Equity Income Fund. "Buying US government bonds yielding 16% in the early 1980s, selling TMT and buying old economy stocks in 2000, and shorting financials in 2007 would all be examples of opportunities that came at major turning points. And today, we believe the opportunity to shift from growth to value after ten years of underperformance is of similar significance. What's more, the process has already started."
Lance and his co-manager of the TM RWC UK Equity Income Fund, Nick Purves, believe the trend towards quality growth over the past decade has been driven by the fact many investors sought growth in a world of secular stagnation, and monetary policy initiatives such as falling interest rates have allowed growth stocks to thrive.
However, Purves notes 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. Markets are reacting to these changes.
For example, the Federal Reserve's actions to shrink its $4.5trn balance sheet resulted in the US 10-year Treasury bond yield - an asset often likened to behaving in a similar way to growth stocks - rising at an alarming rate. Previously such rises have only ever been associated with financial stress and risk-off events - or, crucially, when value investing has done well.
Click here to read the full article analysing value shifts across history, as well as Nick Purves and Ian Lance's unique approach to ‘intrinsic' value investing in their new fund.