Investing for value hasn’t been a profitable decision of late. Ever since interest rates have been held at close to 0% after the economic crisis, investors have been looking for high-yielding equity investments. Growth funds that pay dividends have been an attractive alternative investment to regular funds and bank deposit for millions of investors around the world.
Things might be able to change, however. Most important to remember is that historically, value investing has been most profitable as interest rates have started to rise. As the Federal Reserve and the UK’s Bank of England are set to tighten interest rates, investing for value might become more popular.
It also has to be remembered that after eight years of underperformance, value funds are due for a rebound. As markets become more volatile, it is becoming easier for skilled fund managers to sense opportunities. Take the energy markets. Everybody knows that oil prices have fallen off a cliff, as have some other commodity prices. This has led to a big sell-off. The sell-off in equities seems extreme.
Whilst it is true that big oil and gas companies are much less profitable at $40 per barrel than $120, these firms are restructuring and the price-to-earnings ratios of this industry is now more attractive than at any time for about 30 years. Even a modest increase in the price of oil to $60-$70, will fundamentally change investors feelings about these securities.
Finally, as always, it is good to have some balance in a portfolio and be diversified. With that in mind, many an individual and asset manager will realise that it is sensible to have one or two contrarian options in a portfolio.