Return of value stocks: Perennial
The markets are experiencing an inflection point and value stocks will swing back in favour, according to fund manager, Perennial Value.
Perennial Value managing director, John Murray, said there was sufficient market evidence that global and domestic economies reached an inflection point, where both ‘expensive-defensive' and growth stocks could continue to weaken.
"While some argue it is always a good time to invest in value companies, we see ample evidence of an inflection point now in terms of value swinging back in favour over the next couple of years," Murray said.
Both defensive and growth stocks looked expensive, and were in a ‘crowded trade' state, he said.
"For example there has been recent downturn in the share prices of growth stocks like Transurban and CSL."
Australia had some of the most expensive defensive stocks ‘darlings' in the world, and those stocks had potentially a lot more downside to come, he said.
However, value stocks would rise above the dust. Firstly, value investing involved buying stocks/good businesses that were cheap.
"Secondly it is about the courage of your convictions. And yes, value investing has gone through a recent period of underperformance against some macro headwinds, so holding your convictions during short-term cyclical events is very important."
Record low global interest rates, lower growth and lower earnings, were just some of the headwinds that value stocks experienced. Those factors then drove investors into defensive stock positions, which became ‘expensive defensives', he said.
However, from August's reporting season results Australia saw defensive stocks underperform, he said.
"Add in the fact that investors may simply exit these largely expensive defensive stocks and we believe the swing back to value is very much on the cards."
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