The distinction between value and growth fund managers has blurred in the domestic market and investors are now reluctant to pay a premium for future growth as their appetite for risk has fallen, according toRussell Investment Group.
Russell research analyst Ian Lundy says price to earnings compression – falling P/Es – is causing stocks previously identified in the market as premium growth companies to now be priced as traditional value companies.
“The distinction between the investible universes of value and growth managers is becoming blurred,” Lundy says.
“Some value managers are now investing in stocks that were formerly regarded as growth stocks as they are buying these companies at similar P/E multiples to value companies with a ‘free’ growth option.”
In this environment Russell expects to see a greater overlap in the portfolio holdings of value and growth managers and implies that it will be very difficult to rely solely on quantitative screens to analyse managers.
This, Lundy argues, may lead to poor manager selection.
“At the end of the day there is no substitute for sitting face to face with the investment manager and understanding the nuances of their investment process,” he says.
As a consequence Lundy argues that in the medium term bottom up stock selection is likely to be the key driver of manager returns in Australia rather than adopting a traditional value or growth bias.
