While there are parts of the value universe that are economically sensitive, such as banks and “highly cyclical” industrials, there is also a strong balance of defensive areas, such as health care, and companies that have strong pricing power, especially in traditional industries such as utilities and consumer staples where high inflation has clear benefits. Meanwhile, with supply chains being restored and the effects of deglobalisation and onshoring accelerating, we are expecting higher levels of capital expenditure going forward.
Value investing has a long history of delivering above‑market returns but since the Global Financial Crisis, value‑oriented strategies have struggled as subdued economic growth, very low inflation and ultralow levels of interest rates have hindered performance.
This period has been highly unusual, but with the return of inflation and central banks implementing one of the fastest rate‑hiking cycles in history, we have seen a material evolution in the market environment back to a more normal one. The field is now much more even, offering attractive opportunities for value investors.
