Investment
Value facing unprecedented rally: Schroders

Value stocks are headed towards an "unprecedented" boom, according to Schroders UK fund manager Simon Adler.

Adler said part of the reason value stocks deserve more attention is because growth has been doing so well.

"The last 10 years has been the toughest period on record to be a value investor.  Value has underperformed growth on a rolling ten-year basis for the first time since records began," he said.

He said a unique scenario has eventuated because growth stocks are doing so well, and so now is the time to be looking down the road less travelled.

"The issue for people in growth orientated investments today, is that growth shares are trading in their 96th percentile of valuation versus value," Adler said.

"Quality shares, which are synonymous in many respects, are valued in their 91st percentile.  Levels that are exceptionally hard to generate returns from.  So, the opportunity now is extraordinary. "

Adler said value has seen, and is continuing to see, incredible long-term returns.

"Around 90% of actively managed global equity funds are invested in growth orientated shares.  This is especially true in Australia where there are some very successful funds that are focused on growth and quality investments," he said.

Adler suggests that this has created the opportunity to hedge, but getting in at the right time is the hard part.

"Those that are waiting for a catalyst risk missing out on the recovery.  Even with the ability of hindsight I have not met anyone that is able to tell me what the catalyst has been before that has led to value to recover," Adler said.

There is no indication that a rally in value is subject to a catalyst, but if there is one it likely lies in the movements of central banks.

"There is no definitive reason, but the most likely reason is low interest rates," he said.

"Growth and quality shares have gone up so much since rates have gone down, but in five years with rates at zero you can discount those future profits."

Read more: ValueSimon AdlerSchroders UK
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