When researchers identified the benefits of investing in ‘value’, index providers and asset managers created products to harness the ‘value’ factor. But is the construction of the index correct?
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How does a style that relies on investing in stocks the market dislikes sustain itself over time, when inevitably investors go through difficult markets until the value is realised? It’s not an easy way to run a fund manager.
Investors do not ask enough questions of their fund managers before they commit money. It’s worth at least knowing whether a long-term view is taken rather than the easier road of jumping in and out of markets.
Bonds have performed well for most of the last 30 years with a tailwind of easing liquidity, but the current high prices makes them vulnerable to losing their protective qualities.
The idea that stocks should be divided into growth and yield categories diverts us from fundamentals. Intrinsic value eventually manifests in higher cash flow, whether or not share price appreciation anticipates it.
Macro trends are almost impossible to forecast, and picking undervalued shares with an eye to the long term is a better way. But often, stock selection requires resilience in the face of criticism.