Market conditions could favor value investing again

30.10.2017
Value investing has been declared dead and has come back alive several times over the last 20 years. The past couple of years though, markets have shown that, when interest rates move slightly upwards, this fuels an outperformance in value stocks.

 


Jens Moestrup Rasmussen, Chief Portfolio Manager at Sparinvest

“I think that value as a factor is very much alive and I think we may be facing a new rebound”, said Chief Portfolio Manager at Sparinvest Jens Moestrup Rasmussen at the fourth Nordic Investment Managers Forum in Luxembourg on Thursday.

The fact that interest rates looks to be rising combined with the opinion that value stocks are trading at a discount to the market, has convinced the Chief Portfolio Manager that there is a favorable environment for value investing.

Conditions favor an active approach 

But one thing is being exposed to value as a factor by buying for example an index; another is having exposure to an active value investor performing stock picking on top of that.

 “We think that today’s market conditions favor an active approach to value investing. Stock markets are not as attractively priced anymore and volatility is very low, while stock-to-stock correlation is coming down from elevated levels. Such market conditions warrant careful bottom-up stock picking and well-diversified portfolios in order to avoid the riskier parts of the market”, he said.

According to Jens Moestrup Rasmussen, steady macroeconomic growth and solid corporate earnings continue to fuel global equity markets. However, despite the positive fundamental development, investors recognize the potential for a bumpy ride as central bank stimulus starts to fade. Of course, markets have long known that eventually, after years of central bank liquidity injections, those stimulus measures would need to be unwound - but as we get closer to policy normalization, Jens Moestrup Rasmussen expects investor nervousness to be on the rise.

“On one hand we now have lower volatility and many good fundamental developments, and on the other hand an equity market which has already delivered some solid gains. This suggests that one should perhaps not have excessively optimistic expectations for overall gains in the equity market. However, under market conditions where equity returns are maybe not as strong as they have been recently, this should favor our active approach to value investing”, he said.

Jens Moestrup Rasmussen, who has 20 years’ experience of performing value investing at Sparinvest, heads a team of nine, which has more than 100 years of combined experience within value investing.

The Nordic Investment Managers Forum celebrated its fourth event on Thursday. The forum was organized by Danske Invest, DNB Asset Management, SKAGEN, Jyske Bank together with Sparinvest.

To learn more about Sparinvest’s value investment strategy, please visit www.value.sparinvest.lu