Investors pursuing growth strategies have enjoyed bumper returns since the financial crisis. A graph in a recent article demonstrates the extent to which growth has outperformed value over the last 10 years, with the MSCI World Growth index having delivered more than double the return of its Value equivalent.
On the same theme, a chart in a recent blog post by veteran fund manager Neil Woodford shows that “the difference between the performance of value stocks and growth stocks today is greater than at any stage in stock market history.”
Past performance is no guarantee of future returns
Now, unless “it’s different this time” — historically one of the most dangerous things for investors to believe — the tremendous run in growth stocks, fuelled by extraordinary post-financial-crisis monetary policy, will come to an end. As the market comes back to its senses, we could be entering a golden period for value investing.
On the view that value is primed to outperform in the coming years, here are two investment trusts, I’d be happy to buy today.
Value plus
Gabelli Value Plus+ Trust (LSE: GVP) was launched in 2015 and the name is probably unfamiliar to many UK investors. However, it’s a different matter in the US, where Gabelli Asset Management Company (GAMCO) is well recognised, having consistently deployed its value investment methodology since 1977 and delivered market-beating returns. The methodology has its foundation in the principles first articulated in 1934 by the fathers of value investing, Benjamin Graham and David Dodd
The investment team of Gabelli Value Plus+ Trust is lead by GAMCO heavyweights, supported by over 30 research analysts. It invests primarily in undervalued US stocks. Specifically, these are stocks trading at a significant discount to what the team calculates “an informed industrial buyer” would be willing to pay to acquire the entire company, and where there are identified catalysts for the stock price to move towards this valuation.
The trust may not be well known to UK investors but Gabelli’s ‘Private Market Value with a Catalyst’ selection criteria is not only founded on sound value investing principles, but also is tried and tested.
A world of value
I’m sure more readers will be familiar with British Empire Trust (LSE: BTEM) than with Gabelli Value Plus+. British Empire Trust was established in 1899 and has been managed by Asset Value Investors since 1985. Again, this team has a well-established strategy of identifying stocks trading at a deep discount to intrinsic value and with catalysts for the value to be outed.
It invests globally and its current 20% exposure to Japan provides an example of how it goes about looking for value. It points out: “There is a striking contrast between the US, where the S&P 500 ex-financials index trades on a Price-to-Tangible-Book multiple of 19.2x, and Japan where the multiple for comparable companies is just 1.9x.” And it sees a catalyst for unlocking shareholder value in the shape of rising activist pressure (including from government, shareholder advisory services and the National Pension Fund) on “corporate Japan’s bloated balance sheets.”
With its relentless focus on fundamental value and willingness to look anywhere in the world to find it, British Empire is another trust I believe could thrive in the coming years.