Why Australian value over global value exposure – Australia’s value “spice”

We’ve been hearing from clients of a trend where investors are adding Global Value ETFs to their portfolio to try and tilt towards the value style, given the market dynamics this year.

As long-term active value investors, it is great to see value regaining popularity, but we did wonder if this is really the best way for Australian investors to gain that value flavour…? Our analysis confirms our hunch that a fundamental, high conviction approach focussed on Australian equities is a much tastier dish.

We analysed our Martin Currie Select Opportunities Fund, and as proxies for ETFs, the naïve Value indices MSCI Australia Value and MSCI Global Value relative returns vs. their respective broader geographic benchmarks. We have considered returns both over the last 10 years, and since the style came back into favour at the start of Q4 2020 (using data through 30 September 2022).

Since the value style rebound started two years ago, we have seen our Martin Currie Select Opportunities Fund deliver, after fees, almost as much value alpha as the MSCI Australia index. Both delivered more than the MSCI Global Value index, noting that the indices are presented gross of fees.¹

This result is consistent with a number of structural themes that have baked Australia into a better value-style market than the rest of the world:

• Australia has a higher exposure to resources, financials and real assets, and is short on growth sectors such as tech;
• Australia has less geographic value trap-like risk than global markets as Australian value-style stocks are not dominated by geographic issues such as high weights to structurally challenged European banks;
• Australia growth-style stock valuations are crowded into a few low-quality names (by global FAANG standards); and
• The price to earnings ratio spread is typically higher on Australia value vs. growth than global value vs. growth.

Within this value-positive environment, we believe that our Martin Currie Select Opportunities Fund is able to perform better than a ‘naïve Value’ index approach on an ongoing basis due to several fundamental ingredients:

• Our investment approach, which uses DCF valuations based on sustainable earnings, balanced with quality and growth. This means that we can do better through style and economic turning points. 
• Our dynamic management of portfolio exposure to value/quality and direction, which means we show less downside than Value indices when they are out of favour.

As you can see in the charts below, this has also produced better returns over the long term, with the Martin Currie Select Opportunities Fund providing 30-40% more cumulative alpha over 10 years than the “cheap” Value ETFs, be it Global or Australian.²

Positioned for the Value opportunity

The Martin Currie Select Opportunities Fund provides investors with a diversified exposure to our highest conviction stock ideas with attractive valuations while balancing risks through our focus on quality & directional analysis.

Our stock selection, driven by our proprietary fundamental analysis, is positioned to benefit from the continuation of the market’s rotation from growth to value. Our Australian focus provides investors with the opportunity to benefit from Australia’s geographic advantage within this thematic environment.