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Value investing a likely winner: Maple-Brown

Maple-Brown Abbott's head of Australian value equities Douglas Maple-Brown says the recent de-rating of many ASX listed companies will likely go further, favouring value investors.

Maple-Brown said: "Stagflation fears and the end of easy money have already resulted in the de-rating of many high-flying stocks but it's likely there is still further to go which should favour value investors."

"Valuations had reached extreme highs by historical levels and even though they have fallen significantly, we believe there is still a fair bit more to go."

As a result, Maple-Brown commented that the boutique fund manager is currently structuring portfolios to take advantage of the continuing narrowing in dispersions, positioning itself to benefit from emerging opportunities in the current market.

Depending on which measures are used, the highest rated stocks are more than three standard deviations more expensive at the peak relative to their lowly rated peers, and many sectors are still above historical trends, Maple-Brown noted.

Maple-Brown added: "Furthermore, after spending such a long time so far above average, it would not be surprising if the situation flipped, and the highly rated stocks traded below long-term averages for a period of time."

"The wide value dispersion in the Australian market suggest that our value style of investing will continue to deliver for our investors."

Meanwhile, Insync Funds Management has made a case for a more positive outcome for equities in the second half of 2022.

Insync portfolio manager John Lobb said that despite a barrage of bad news and sustained focus on negatives, there are compelling facts, trends and activities that could surprise bearish commentators.

"Today's environment presents a perfect storm of factors set to mislead decision makers in these aspects of wealth management," Lobb claimed.

He added that, as the economy continues to evolve, there is little doubt that the last two years will cause a further change to its operating rhythms.

"However, even though the economy is complex, industry participants tend to rely upon a few favourite data points to figure out the future," he said.

"The focus of commentators tends to coalesce around the consensus view of an issue, we argue that this kind of approach is fraught with danger."

Investigating common assertions that Insync believes stir up worry and pessimism, the fund manager refuted that carbon energy prices will keep rising and that elevated supply chain costs will be protracted.

Specifically, Insync said that net carbon demand continues to drop as oil intensity in economies also falls. Likewise, shipping capacity and efficiency is rapidly improving with pandemic related logistical chokepoints beginning to evaporate.

Insync also challenged assumptions that reshoring back to the West would cause higher prices and that the US economy is heading for a major recession.

Further, on markets suffering a valuation de-rating from fear of persistent high interest rates, Insync noted that this isn't an earnings de-rating.

"Investors are concerned with a policy error by the Federal Reserve that may tighten too hard at a time when inflation rates may be close to peaking and would likely come down quickly if the general economy slows," Insync said.

The fund manager concluded that equity markets have much more upside risk than downside risk when factoring interest rates.

Overall, Lobb said: "We believe that 2022 could well be, once again, a game of two very different halves."

"Allocating away from equities as a result of the present consensus may be the 'risk-on' call, resulting in a performance drag."

Read more: EquitiesASXDouglas Maple-BrownMaple-Brown AbbottInsync Funds ManagementJohn LobbValue investing