Overrated value set to fall
Therun of success for value managers is about to come to an end with growth management set to stage a comeback according to research housevan Eyk.
In a first for the group, van Eyk has also moved away from its stated position in which it has never recommended indexing, saying the state of the market is such that “indexing may even become an option for those wishing to reduce costs in a lower return market”.
Managing director Stephen van Eyk says the market has reached a point “where value is overvalued, and growth is undervalued.”
While the research house has always held that actively managing funds adds value, it concedes in the current neutral market the narrowing of dispersion in the value of stocks may impede the return from stock picking.
“Value has run itself into neutral value, with lower compensation for risk. Because of this movement towards low compensation, there is less reason for people to take risk,” Stephen van Eyk says.
Van Eyk also says that many of the value managers over the last two years have been flattered by the market, and in a more neutral environment may not prove as successful.
“Some value managers have had a triple header going for them. The value conditions, the benefit of the smaller size of boutique managers and the huge compensation for taking risk have all attributed to their success, which perhaps has been over-rated,” he says.
With the tide turning on value, the bottom performers of recent years may start to stage a comeback, with those growth managers who have been suffering now finding the market conditions looking to swing in their favour.
In light of this view, it may be wise not to desert growth managers now and while some of the larger growth type managers may struggle to beat the index they should at least hold their own against their peers over the next twelve months, van Eyk says.
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