The long-awaited value revival continued over the June quarter with managers tilted to the style generally outperforming during a difficult period for most asset classes, according to the latest Melville Jessup Weaver (MJW) investment survey.
“In the aftermath of the 2020 Covid-19 induced shock, huge speculative appetites saw valuations of many ‘growth’ stocks soar,” the MJW report says. “This quarter has been the latest in a series of reversals of this trend and the most decisive victory of value investing over growth in many years. Value has won back 17.1% versus growth in 2022 so far.”
While almost all global equities managers went backward over the quarter and 12 months to June 30, the median value fund in the MJW survey was down just -2.9 per cent for the three-month period compared to -8.7 per cent for the growth cohort.
However, the best-performing global shares manager for the both the quarter and year – the Macquarie NZ (formerly AMP Capital) global equities fund – sits in the MJW growth category: the Macquarie fund – with GQG as underlying manager (which took over from Vontobel in 2018) – was the only one to report a positive return in the June quarter (up 2.3 per cent) while its annual result of 9.4 per cent was almost double the top-performing value strategy (Dimensional Fund Advisors) return of 5.2 per cent for the same period.
Value still lags over longer timeframes but the gap is beginning to close.
Big currency movements also affected global share returns for the quarter with unhedged investors boosted by the rapidly falling NZ dollar against its US counterpart.
In local currency terms the international shares index was down about 14.3 per cent for the June quarter but the “depreciating New Zealand dollar cushioned these losses for unhedged investors (they saw their portfolios down 6.2%)”.
“Thus, on a 50% hedged basis, global shares were roughly comparable to [NZ] domestic shares [about -10 per cent over the three months to June 30],” the MJW report says.
The value effect flowed into NZ fund manager performance, too, with Devon topping both the Australasian and ‘other’ MJW categories for the year and quarter: the Craigs Investment Partners-owned QuayStreet Asset Management reported the best core NZ shares fund return of -8.3 per cent for the quarter and -9.6 per cent over the 12 months.
Financial market turbulence also naturally flowed through to the KiwiSaver market with all funds covered by MJW in the red for the quarterly and annual periods.
In the KiwiSaver growth category, Fisher Two came out ahead for the quarter (-8 per cent) while Kiwi Wealth, ANZ and Simplicity – reporting returns of -10.4, -10.3 and -10.2 per cent, respectively – had the worst of the quarter.
The impact of asset allocation showed out again in the relative results of index-style managers Simplicity and SuperLife with the latter the second-best growth KiwiSaver fund for the quarter with a return of -8.5 per cent: Simplicity has also diversified a little away from core passive funds of late into mortgages, venture capital and property development.
Fisher Two, too, reported the best conservative fund result for the June quarter (-1 per cent) with Simplicity (-5.6 per cent) the worst of 16 funds in the category over both the three- and 12-month periods.
MJW report author, William Nelson, says regardless of the short-term pain, the realignment of asset classes over 2022 heralds some positive news for long-term investors.
“As a consequence of the higher yield environment, we expect significantly better results from a conservative fund going forward compared to what has been achieved recently. On the other hand, with higher prevailing interest rates and expectations of lower levels of quantitative easing, our future expectations for growth funds are slightly more muted compared with what historically has been garnered,” Nelson says.
“In spite of the recent and ongoing turbulence in 2022, our view is that there are certainly reasons to be more optimistic about markets in the coming years. For investors who are aiming to deliver results over the medium to long term, our advice is to remain focussed on this longer timeframe and to avoid making significant changes to overarching strategy in response to these shorter-term challenges.”