Identifying lowly-valued stocks in the market has been shown to historically deliver alpha over the long term. M&G Investments’ Value Equities team, through their contrarian, research-driven approach, seeks to harness this “value phenomenon” by buying solid businesses trading below their perceived intrinsic worth and being patient as fundamentals and sentiment become likely to normalise.
What are value investment strategies?
Value investment strategies focus on buying equities that appear undervalued relative to their intrinsic value, typically measured by metrics such as price-to-book, price-to-earnings, free cash flow yield, or asset value. These strategies are contrarian in nature: they look for companies where temporary headwinds, cyclical pressures, or market misperceptions have pushed prices below what long-term fundamentals justify.
Why value now?
Potential for long-run outperformance
Consistent value track record
Differentiated investment approach
In recent years, unloved stocks in the cheaper part of the market have been overlooked as many investors have been drawn to perceived higher quality and rapidly-growing stocks, particularly in the technology sector. This has resulted in a wide valuation gap between the cheapest and most expensive stocks in the market.
Today, we believe there are active returns to be generated from investing in low-valued, out of favour stocks, which are trading at depressed valuations due to investors’ increasingly short-term horizons and their perception of risk.
Another potential tailwind for value investing currently is the change in investment landscape: we believe that we have moved from a world of stability and zero-interest rates to an environment of increased volatility and unpredictability.
In our view, the combination of attractive valuations and a more dynamic backdrop will create opportunities for patient, selective value investors to identify stocks that are unfairly caught in market dislocations. This reinforces the case for long-term value investing, where investments can potentially benefit over time as fundamentals reassert themselves.
“We are very patient and are happy to wait a long time for lowly valued stocks to reach a valuation that reflects their true worth.”
Shane Kelly
Fund Manager
“We believe the wide valuation dispersion in the market and changing investment regime offer exciting opportunities for disciplined value.”
Richard Halle
Fund Manager
“Our differentiated approach is designed to mitigate the common pitfalls of value investing: volatility and value traps.”
Daniel White
Fund Manager
What are the benefits of global value investing?
Diversified opportunity set
Accessing undervalued companies across regions and sectors increases the breadth of mispriced ideas and reduces reliance on any single market cycle, aligning with value investing strategies implemented globally.
Multiple catalysts
Different geographies experience economic, regulatory, and industry inflection points at varying times, creating varied catalysts for value realisation that suit contrarian investing strategies and long-term value investing.
Risk mitigation through diversification
A global approach helps spread company-specific, sector, and country risks, while maintaining a consistent margin-of-safety discipline.
Structural inefficiencies
Behavioural biases, benchmark crowding, and short-termism can be more pronounced in certain regions, creating attractive alpha opportunities for disciplined value investors applying contrarian investing strategies.
The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested.
Main risks associated with these strategies:
The funds can be exposed to different currencies. Movements in currency exchange rates may adversely affect the value of your investment.
ESG information from third-party data providers may be incomplete, inaccurate or unavailable. There is a risk that the investment manager may incorrectly assess a security or issuer, resulting in the incorrect inclusion or exclusion of a security in the portfolio of the funds.
Please note, investing in these funds means acquiring units or shares in a fund, and not in a given underlying asset such as building or shares of a company, as these are only the underlying assets owned by the funds.
Further details of the risks that apply to these funds can be found in the funds' Prospectus.
This is a marketing communication. Please refer to the prospectus and to the Key information document (KID) before making any final investment decisions.
The views expressed on this webpage should not be taken as a recommendation, advice or forecast.