Looking for value
Writing in the fund’s January commentary, she said: “Overall there were tentative signs of improvement this month in larger cap and value stocks. It is too early to say whether this is short-term mean reversion or marks a longer-term shift in market leadership. The poison is not yet out. However we remain of the view that at this stage of the business cycle the greatest future returns (say the next three years) will be found here.”
Simon Brazier, manager of the Investec UK Alpha Fund, is also looking closely at such stocks, but agrees that there is still liable to be more pain, particularly in the commodities space.
But, he told Portfolio Adviser, there is a difference between the types of companies that currently offer value and those that were in a similar position in 2000, and 2008.
“In those earlier markets, the companies that had been decimated were good quality business. This time around, the areas offering value are banks, miners, oils and food retailers.”
The difference, Brazier argues, is that these companies do not tend to have particularly high margins – especially in the commodities sector, where prices have fallen dramatically – which makes finding opportunities more challenging.
As a result, both Brazier and Dean say the other area they are looking in is a certain part of the ‘special situations’ bucket – good companies that have had a setback, like Morrisons, in Dean’s case, and Rolls Royce and RBS in Brazier’s.
Of course, differentiating the good companies from the ones bad ones that have had a setback is where the skill comes in. But, in a world that is trying to make head or tail of everything from the lack of productivity to the likely impact of ‘Brexit’ it feels as though that is exactly the sort of skill that is needed.
