Opportunity: Value investing
Buying when relatively cheap
Companies with exciting growth stories can seduce investors, while those that receive little fanfare can put investors off. This is why value investing can be so lucrative, particularly when market conditions change due to rising interest rates, higher inflation and the end of the free lunch that was quantitative easing.
Value investing is the practice of buying stocks whose market value does not reflect the company’s true potential. The value premium – essentially the age-old concept of looking for a bargain – has been in the stock market for more than 150 years.
Co-Head of Quant Fixed Income and Lead Portfolio Manager
Times have changed; value has significantly outperformed growth since 2021. 2022 saw value enjoying its best start to a year in over four decades.
Value was out of vogue when Covid caused a stampede into high-growth stocks and ‘expensive defensives’ led by the tech giants. But times have changed, with the value premium significantly outperforming growth since 2021. 2022 saw value enjoying its best start to a year in over four decades.
Rising rates and higher inflation are mainly responsible for this performance, because higher borrowing or living costs tend to hit growth-oriented consumer discretionary stocks the hardest, leaving traditional value companies in the ascendancy.
Value is quick off the blocks in 2022
Source: Refinitiv, Robeco. The figure shows the cumulated return spread per calendar year between the top and bottom quintile portfolios of an enhanced value strategy. The investment universe consists of constituents of the MSCI Developed and Emerging Markets indices. Before 2001, we use the FTSE World Developed index for developed markets (going back to December 1985), and for emerging markets, the largest 800 constituents of the S&P Emerging BMI at the semi-annual index rebalance (going back to December 1995). The portfolios are equally weighted and rebalanced monthly. The sample period is January 1986 to April 2022.
Robeco has always had many value-driven strategies, run by both our value-investing affiliate Boston Partners, and in-house by our quant teams.
Robeco QI Value Equities is a systematic strategy with a transparent process and human overview. It can be selective in buying the most attractive value stocks and avoiding value traps – where the stock is cheap for a reason – resulting in enhanced returns. It achieves a high active share and a deep value exposure. The proprietary ‘decarbonized value’ approach to reduce the footprint below that of the index, is included as standard.
The Robeco BP Value strategies are fundamentally run and sub-advised by Boston Partners, a value equity specialist founded in 1995. The firm uses the ‘three circles’ process and philosophy that has been tested and honed over several decades. It seeks companies with an attractive valuation, sound business fundamentals, and improving business momentum. The investment criteria for all three circles must be met, or the company won’t make it into the strategy.
Robeco also has an extensive diversified offering of Asia Pacific and emerging markets strategies with a strong value tilt such as the Emerging Markets strategy and the Asia Pacific Equities strategy.