Legg Mason’s equity specialist, Martin Currie, has noted in a recent research paper that value stocks have been beaten up despite their better EPS growth.
The study also found the recent strong returns of growth strategies appeared to have come not from earnings growth, but from a price-to-earnings (P/E) re-rating while at the same time the value stocks were de-rated.
Martin Currie’s chief investment officer, Reece Birtles, said the strength of momentum as a factor also helped drive unprecedented underperformance of value-based strategies for the last few years.
“We have witnessed strong earnings-per-share (EPS) growth since 2016, extending the post-global financial crisis (GFC) run to nearly 10 years of expansion. Given the persistence of the economic cycle, momentum strategy performance has been exceptionally strong,” he said.
The Legg Mason Martin Currie Select Opportunities fund is currently overweight stocks in consumer, non-bank financials and energy sectors and are holding higher than average quality exposure.
For the three and five-year periods through 30 June 2018, the fund returned of 13.7 per cent per annum and 13.45 per cent per annum respectively, net of fees, the firm said.
Some of its key value stocks in its portfolio included JB Hi-Fi, Woolworths and Woodside.
“As valuation spreads will continue to widen, new opportunities are opening for the portfolio. Our multi-lensed investment approach places us in a strong position to navigate this environment going forward,” Birtles said.
