Veteran investor Jean-Charles Mériaux has backed value to be a major source of returns for the coming year, the DNCA Finance chief investment officer said in a market outlook.
Mériaux, who is a named manager on five funds at the group, said value-led investing was currently under-represented in portfolios globally but market dynamics would strongly benefit this style.
‘After a decade of underperformance, the value fund management approach began to return to favour in September, with a sharp rebound for financials.
'Value stocks have been catching up and this trend is set to continue for such times as the valuation gaps with quality and growth stocks remains wide,’ he said.
Mériaux said if you stripped out loss-making companies, then the most applicable index, the Euro Stoxx Value, is only valued at 13.6x earnings for the current year while it has an expected yield of 4.3%.
‘The value fund management approach, which is widely under-represented in portfolios in Europe, which itself is structurally underweighted by international investors while the euro is severely undervalued, could prove to be one of the winning areas for 2017.’
Commenting on the broader outlook for Europe, Mériaux said the potential outcome for populist victories in the forthcoming French and German elections was a lot lower than headlines would lead investors to believe.
‘Wariness on the eurozone due to the number of political and electoral events coming up looks blown out of proportion. Contrary to an opinion that is very widespread internationally, the probability of a shock vote looks low in both France and Germany.
‘Investors should take advantage of the political discount carried by the markets in the eurozone, without waiting for the result of the elections, which could be catalysts for a rally as was the case in 2016.
‘Furthermore, unlike previous years, corporate earnings could throw out some pleasant surprises: earnings projections in the eurozone have been on an uptrend for the past three months and are for a 14% rise in 2017, or 10% excluding financials.’
On a three-year basis, the fund returned 12.2% in euro terms while the average manager in the Mixed Asset – Conservative EUR sector returned 8% over the same timeframe.