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Value investing back in the spotlight

Date: 30 May 2025

In recent years, the phenomenon of the Magnificent Seven, and their seemingly never-ending march higher, has dominated the investment landscape. However, they have collectively hit the buffers in the last few months, with only Meta making it into positive territory year-to-date (as at 22 May 2025). Against this backdrop, Lindsay James, Investment Strategist at Quilter, looks at how value investing is once again in the spotlight.

So far in 2025, the best performing sectors in the US have included healthcare, utilities, and consumer staples – areas of the economy which are more protected from a cyclical downturn, where stocks often pay dividends and typically have valuations strongly underpinned by fundamentals. All areas favoured by value investors.  

The difference in approach

The key difference between the growth and value investing styles is what the portfolio manager believes will be the primary driver of superior performance in the future.

The value style focuses on identifying stocks where there is a gap between the current share price and their view of the fundamental ‘fair value’ of the company. This can lead them to businesses suffering a setback, where both earnings and valuations are depressed but have the potential to reverse. Alternatively, they can take the ‘Warren Buffet’ approach of seeking ‘wonderful companies at fair prices’. This is an approach that requires patience, opportunism, and a high level of research.

The growth style focuses on identifying stocks where the manager believes there is a strong and sustained growth trajectory ahead. This allows them to benefit from capital appreciation as the company expands and its share price rises. This has found favour in recent years through the excitement for AI and the rapid expansion of companies such as Nvidia.

US economy driving the shift

The shift from growth to value is partly down to concerns over the direction of the US economy with Trump’s tariffs looking likely to lead to lower growth and higher inflation, risking a recession. Investors place a high value on certainty and, as a result, are looking to companies that can deliver even against this challenging backdrop. This has led them to relatively economically insulated sectors such as defence, consumer staples, and utilities. Equally in down or sideways markets, dividend yield is a larger part of total return, with higher dividend payers often overlapping with the value-approach.

Looking closer to home, the UK is benefiting from this style pivot. The UK stock market is dominated by large-cap value names, so the MSCI UK Index has been one of the best performing markets so far this year to the end of April. Also, the UK does not have the same representation from high-growth tech companies that have been the rocket-fuel for US markets in recent years. So, as the valuations of these companies come back down to earth, the MSCI UK Index is already priced more attractively, with a dividend yield of around 3.6%, far higher than the 1.3% offered by the equivalent US index.

Europe and US offer value

Aside from the UK, where many value managers find their natural home, Europe and, perhaps surprisingly, the US also offer a backdrop in which value investors can thrive. Both regions benefit from a wide universe of large, listed companies with established track records, where value managers typically seek to uncover opportunities. While UK-listed companies may tend to offer better dividends, Europe and the US both offer a significantly larger investment universe, giving managers greater choice and the opportunity for diversification.

There are two funds that we particularly like in this space – the Brandes US Value and M&G European Strategic Value funds.

The Brandes US Value Fund leans heavily on the philosophy of Warren Buffet. The managers seek investment opportunities from three areas:

  1. ‘Wonderful companies at fair prices’ – prominent, conservatively financed companies with established track records, such as Johnson & Johnson.
  2. ‘Fair companies at wonderful prices’ – relatively unpopular large companies that can be bought for an attractive price, such as Comcast and Fedex.
  3. ‘Bargain issues’ – companies with extreme undervaluation or going through ‘special situations’ such as Citi or CVS.

The managers then focus on companies that have scope to grow over time, not just those that are very cheap today. We also like their total focus as an asset manager on value strategies, ensuring there is no competition for resources or energy from other strategies.  

The M&G European Strategic Value Fund has a more traditional value strategy approach that looks for companies where earnings might be temporarily low, and valuations might be temporarily cheap. Hopefully, this leads to the ‘double dip’ of both earnings improvement and valuation multiple improvement.

The managers aim to build a highly diversified portfolio to give as many opportunities as possible to find winning positions. This diversification also allows them to buy time for the value to emerge. They are not trying to predict a short-term catalyst for change, so once they own a good, cheap business, they are happy to hold for the long term to wait for the value to emerge.

Within the universe of cheap companies, they want to own durable businesses with strong balance sheets and back company managers who have delivered a track record of delivering value to shareholders – all of which are ways to try to avoid value traps.

For more information

Here's more on the Cirilium Portfolios, or speak to your usual Quilter contact.

Lindsay James

Investment Strategist

Lindsay is an investment strategist at Quilter Investors. She joined Quilter Investors in 2019 having spent the majority of her career as an equity analyst for a large blue-chip fund manager and subsequently at a hedge fund. She has over 14 years of industry experience.

Lindsay is a CFA charterholder and has passed the chartered wealth manager qualification. Lindsay has a degree in Economics from University College London.