Value managers may return to the runway in NZ as the style comes back into fashion following a decade of uncoolness, according to boutique consultancy firm, Makao Investments.
In a note published last week, Makao said NZ investors had seen little choice in value funds over the previous five to 10 years as growth stocks outperformed by a wide margin.
The Makao paper says the dearth of value options was “not surprising, as past performance can be a great selling point for any investment product”.
“But with value investing becoming more successful now, we may be at a crucial turning point: a changing of the guard, so to speak,” the note says. “Fund managers with a growth focus might soon decline in popularity and global value managers could rise from the ashes. This could result in significant changes in the investment products held by the average investor in New Zealand, and perhaps even affect KiwiSaver.”
Growth companies have dominated world share market performance in an almost uninterrupted run dating back to the 2008 global financial crisis with the gap over value spiking to historical highs from 2020 until late last year when inflation and rising rates derailed the trend.
Value experienced a similar period of outperformance versus growth in the wake of the 2000 market crash, figures from index provider, MSCI, show. The tussle between growth and value has been a persistent feature of markets over time, the Makao paper says.
“These swings in growth and value investing should therefore not be unexpected, but they might catch you off-guard if you do not understand your fund manager’s approach,” the note says.
The value resurgence has seen a performance turn-around for Australasian equities boutique, Devon Funds, for example, while the global share managers in the Melville Jessup Weaver (MJW) quarterly investment survey have outperformed growth rivals during the quarter and 12 months to June 30 this year.
But over the 10 years to June 30 the median manager in the global shares growth cohort in the MJW survey returned an annualised 15.2 per cent compared to 11.9 per cent for the value group.
MJW includes nine wholesale managers in its global shares value sector and 14 in growth – few, if any, of the former group are well-known to NZ retail investors.
However, the Makao note argues investors need to understand their own needs and the drivers of manager performance rather than simply following trends.
“Most investors have clear views on what approach fits their preferences. This is often the best starting point for a conversation,” Makao says. “If a property investor does not believe in ‘do-ups’, they probably should not buy those properties. The same is arguably true with any investment: if you do not believe in an investment approach, it may be best to avoid it altogether.”
Makao was founded in 2019 by former Russell Investments NZ head of institutional, Noah Schiltknecht, with John Horrell joining later the same year from Russell in the UK.