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Long-term value investing still pays off
Investors should not give up on long-term value investing, even though it has been subject to recent cyclicality, according to State Street Global Advisors (SSGA).
Also, at this relatively low point in cycle, investors should broaden their definition of value in order to fully capture the value premium over the long term, the firm said.
Value investing underperformed its long-term average returns for eight years and following the Global Financial Crisis (GFC) when central banks in developed regions aimed to pursue aggressive monetary easing tactics to provide liquidity which, in turn, inflated asset prices.
However, the change of action by central banks, which are currently reducing their balance sheets and increasing rates, might have a positive effect on the value premium as steadily rising rates lead to lower growth stock valuations.
“With this in mind, rather than abandon the value theme until its performance improves, we believe that this is exactly the time to adhere firmly to the time-tested principles of value investing – and not to give into irrational exuberance,” SSGA said.
“Like any investment, value is subject to cyclicality. During down periods in the cycle, investors can improve their long-term prospects for success by being discerning as they continue to invest in value stocks.
“To that end, we believe that a robust and multi-dimensional approach to value is essential for investors who seek to reap the benefits of value investing over the longer term.”
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Uncertainty around tariffs and subdued growth may lead to some short-term constraints in relation to the private credit market, the fund manager has said.
Just three active asset managers are expected to attract net inflows over the coming year, according to Morningstar, with those specialising in fixed income or private markets best positioned to benefit.
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