the return of the value investor

Warren Buffett obviously knows the value of his beans. His long-term record is way ahead of the competition but, following Berkshire Hathaway’s deal to buy Heinz, when will the others ketchup?

the return of the value investor


Sorry, couldn’t resist that one. But on a serious note, the $28bn (£18bn) purchase is confirmation that true value investors are still out there and willing to put their money to work. In October Heinz said it had sizeable net debts of $5.1bn, though interestingly emerging markets now make up almost a quarter of its sales, and rising.

Buffett’s ideas make immediate headlines, of course, but there’s real feeling that despite rallying equity markets fund managers too should be working harder to make high conviction bets. That may sound like an obvious statement but, in an age when index huggers are being named and shamed, the heat is on stockpickers to prove they really are better than just average.

As one senior fund picker remarked to me recently, investors that constantly talk about wealth preservation may be virtuous, but that’s probably not why they came into the job. The name of the game is to make money from the unloved.

Leigh Harrison, head of equities at Threadneedle, shares a similar mindset.

“Share prices are driven as much by fear and greed as they are by changes in profitability and dividends,” he says.

“The trick is you need to be buying when everyone is fearful and expectations are low because that’s when you get the combination of low valuations and negative sentiment. You wait until you have euphoria and greed in ascendance and take profits.”

Turnaround stories

He adds: “I am looking at a lot of things that people are dismissing because they have fallen on hard times. For example, Morrisons can’t find a friend but it is yielding nearly 5%. It has a decent yield, fantastic franchise, lots of property, and is an interesting turnaround story. A growth investor would look at it very differently.”

We’ve become somewhat used to markets being driven by macro factors, but could we really be returning to a so-called “stockpicker’s market” in favour of the real value hunters? The consensus seems to be a yes though, as Dan Briggs, chief investment officer at FF&P Asset Management, warns: “there are hundreds of ways to skin a cat in terms of investment and no particular style is going to work over all periods.”

He adds: “If you believe, like we do, that to some extent markets are driven by greed and fear and by massive liquidity, unless you are looking at the interplay of those factors and you are looking at the liquidity very carefully, attention to just fundamentals has been difficult – whether you are a growth manager or a value manager.”

Briggs also points out that just 12% of active fund managers outperformed the S&P 500 last year, with a similar pattern in Europe and the UK. That’s a whole new article in itself though…



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