Now Is The Time For Value, Martin Currie Says

25 February 2021: Now is the time to look towards Australian value stocks, in anticipation of the economic rebound, says leading value equities fund manager, Martin Currie Australia Chief Investment Officer Reece Birtles.

Birtles says: “Historically, there is a tight correlation between value spreads and economic growth and bond yields.

”Value stocks have underperformed growth over the past decade but Birtles says the performance deficit bottomed in the third quarter last year, as key economic indicators such as the World Purchasing Managers’ Index and the US 10-year bond rate improved. 

“Given the likely ongoing recovery of economic growth and bond yields as the vaccine is rolled out and the world recovers from COVID-19, we believe that spreads will again tighten and continued significant value
outperformance is likely,” Birtles says. 

Critically, Birtles believes the Australian market presents a sounder opportunity for value investors than the global equity market. 

“Many global value portfolios are reliant on narrow index positions in banks, energy and Europe versus the dominant platform, technology, healthcare and US stocks, whereas Australian value exposures are not dependent on structural or geographic bets, and offer more diverse sector opportunities. 

“The Australian MSCI Value Index has shown a significant upturn since the vaccine, a trend which is less evident in global indices.

” Further evidence of this trend is a recent Morningstar report showing the large-cap Australian equity value funds in its coverage outperforming large-cap Australian equity growth funds over the three months to the end of January. Morningstar has value funds returning an average of 13.9 per cent over that period, while growth funds returned 11.2 per cent. 

Birtles mentions some of the value stocks that Martin Currie believes are undervalued include Nine Entertainment, Star Entertainment, Inghams Group, Worley, the Big Four Australian banks and Medibank Private. 

“It is important to note that when we talk about opportunities in value stocks, we don’t mean to say that they are poor quality companies versus their growth counterparts. We see that maintaining quality in portfolios is integral, given the prevailing economic uncertainties.” 

Birtles says: “Earnings per share (EPS) performance between the styles has been remarkably similar over the last 25 years. This means that the return differential has been driven primarily by a multiple re-rating for growth stocks.

“The premium that people are willing to pay for growth stocks, despite similar earnings prospects, has been significant.”

Notes to the editors
 

About Martin Currie

Martin Currie is an active equity specialist, crafting high-conviction portfolios for client-focused solutions. Investment excellence is at the heart of our business. Central to this philosophy is a stock-driven approach,
based on in-depth fundamental research, active ownership of companies and skilled portfolio construction. As part of Franklin Templeton, we also have the backing of one of the world’s largest asset management firms.

About Franklin Templeton
Franklin Resources, Inc. [NYSE:BEN] is a global investment management organisation with subsidiaries operating as Franklin Templeton and serving clients in over 165 countries. Franklin Templeton’s mission is to help clients achieve better outcomes through investment management expertise, wealth management and technology solutions. Through its specialist investment managers, the company brings extensive capabilities in
equity, fixed income, alternatives and custom multi-asset solutions. With offices in over 30 countries and 1,300 investment professionals, the California-based company has more than 70 years of investment experience. In July 2020, Franklin Templeton completed the acquisition of Legg Mason, Inc. [NYSE:LM] and its specialist investment managers. The newly-combined organisation establishes Franklin Templeton as one of the world’s largest independent, specialised global investment managers with a combined approximately US$1.5 trillion in assets under management (AUM) across one of the broadest ranges of high-quality investment teams in the
industry as of 31 January 2021. For more information, go to www.franklintempleton.com.au

For all media queries, please contact:
Simrita Virk
[email protected]

Disclaimer

Franklin Templeton Investments Australia Limited (ABN 87 006 972 247) (Australian Financial Services Licence Holder No. 225328) is the product issuer. We have not taken yours or your clients’ circumstances into account. You should yours and your client’s circumstances assess whether the information is appropriate for you and consider obtaining independent taxation, legal, financial or other professional advice before making an investment decision. 

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. In providing the information on this website, we have not taken the individual circumstances, investment objectives or financial situation of any investor into account. You should conduct your own investigation or consult a financial adviser before making any decision to invest and to help determine if the information provided is suitable for your particular circumstances. All investments involve risks, including possible loss of principal. Please refer to the relevant Product Disclosure
Statement available on this website before making any investment decision.

Copyright © 2021. Franklin Templeton. All rights reserved.