Why European value warrants a new perspective

As a manager of European value strategies for more than two decades, what has kept you committed to this style through different market environments?

I’ve always had a fundamental belief that the value style works. Even during extended periods when it has been out of favour, we have been able to generate performance. That’s why we view this fund as more than just a value exposure. It’s a differentiated, active strategy with a track record of delivering across different environments. On a personal level, value investing is endlessly engaging. As markets evolve, opportunities appear in different types of companies and situations. That constant process of discovery – of finding new ways to deliver returns – makes the work both intellectually engaging and rewarding.

What does it mean to be a true contrarian, and what is your most memorable contrarian call?

For me, being contrarian is less about investing in the most unpopular or uncomfortable opportunities just to be different and more about timing. Often, we make buy or sell decisions at moments when most rational people would be asking, ‘Why are you doing this now?’ – not ‘Why would you do this at all?’ A good example was Electrolux in 2009. Buying a domestic appliance business in the depths of the financial crisis – when consumer demand was weak and people had already stocked up on white goods – seemed to go against the prevailing logic. But the valuation was compelling, and the stock ended up nearly tripling in six months. It was a valuable reminder that markets can reprice much more quickly than expected.

How does your team’s experience and stability contribute to the fund’s long-term success?

Investment management involves significant pressure, and having a team with deep expertise and continuity helps navigate that effectively. For value investors in particular, one of the key success factors is managing behavioural biases. That becomes much easier when you are working alongside colleagues who have experienced similar market cycles and know how to remain disciplined. The strength and stability of our team have been a major factor in the fund’s long-term success.

Value investing can be volatile. How does your three-stage investment process help reduce that experience for investors?

When we launched the fund, we wanted to address the perception that value investing comes with high volatility – a view that can be off-putting for some clients. We designed the process to try and smooth out that journey. Each stage of the process – from screening to fundamental analysis to portfolio construction – is focused on reducing risk we cannot control. Our portfolios are highly diversified, and we spend a lot of time thinking about how to manage volatility without compromising on the opportunity to deliver returns.

European equities are enjoying a resurgence in 2025. Is this value rotation a short-term event or something more structural?

We believe value works – and that it works for identifiable reasons. The 15 years following the financial crisis were unusual in that value didn’t deliver, and we think we understand why. What we are seeing now is a return to more normal market dynamics, where valuation matters again. There’s still a significant spread between value and growth stocks, which we think strongly favours value. As a result, we believe there is opportunity for value to continue to do well.

How have recent political and economic developments – such as Germany’s stimulus programme – shaped the opportunity set for value investors?

Germany’s stimulus could be very significant. It has the potential to support European growth and investment, which would benefit many of the value-tilted sectors we are exposed to. If it succeeds, it could also attract global capital back to Europe – an important development for the region and for our portfolio. For much of the past decade, investors have allocated heavily to US equities, supported by low volatility, strong momentum and accommodative central banks. The 2010s were defined by a relatively stable and trend-driven environment – one that favoured growth and quality styles. Political and economic conditions have shifted. We are now in a more volatile and unpredictable world, and that can create a much richer opportunity set for contrarian value investors.

Where are you finding the most compelling opportunities at present?

What stands out in the current environment is the breadth of opportunity. Value has been under-owned for so long – with much of the capital in Europe directed towards growth or passive strategies – that mispricings are now pervasive across sectors. This widespread dispersion allows us to construct a highly diversified portfolio without needing to concentrate risk in any one area. We typically hold between 60 and 100 stocks, with no single holding exceeding a 3% over weight. Recently, we have been more active than usual, taking advantage of the volatility. In the second half of last year, sentiment turned sharply against Europe, which gave us the chance to buy interesting stocks at incredible valuations. In early 2025, many of those stocks rallied quickly, and we sold into that strength. When markets sold off following ‘Liberation Day’ in April, we reinvested. The result is a fresh portfolio that reflects a dynamic opportunity set.

Finally, what role can European value play in a well-diversified portfolio today?

Most global portfolios remain heavily weighted toward the US – and that positioning has delivered strong results over the past decade. But today, many investors are questioning whether that can continue, given current valuations and how crowded the trade has become. Europe presents a compelling alternative. It offers strong companies, lower valuations relative to US peers and a more supportive political and economic backdrop than I think I’ve seen at any point in my career. Europe has a robust banking system, improving end markets and positive momentum from supply chain reshoring. If stimulus efforts – such as Germany’s – prove effective, they could drive a broad-based recovery. This is not just a valuation story – it reflects a turning point in momentum. The next chapter for Europe could offer significant opportunities.