Reece Birtles
Investors have recently been adding Global Value ETFs to their portfolios to enhance exposure to value style given the market dynamics this year, says Martin Currie, the active Australian equity investment manager, part of Franklin Templeton.
“As long-term active value investors it is great to see value regaining popularity. But we did wonder if this is really the best way for Australian investors to gain that value flavour? Our analysis confirms that a fundamental, high conviction approach focused on Australian equities is a much ‘tastier dish’,” says Reece Birtles, chief investment officer, Martin Currie Australia.
Birtles adds: “We analysed the Martin Currie Select Opportunities Fund, and as proxies for ETFs, the naïve Value indices MSCI Australia Value and MSCI Global Value relative returns vs. their respective broader geographic benchmarks.
“We have considered returns over the last 10 years since the style came back into favour at the start of Q4 2020 (using data through 30 September 2022).
“Since the value style rebound started two years ago, we have seen the Martin Currie Select Opportunities Fund deliver, after fees, almost as much value alpha as the MSCI Australia index. Both delivered more than the MSCI Global Value index, noting that the indices are presented gross of fees.[1]
“This result is consistent with a number of structural themes that have baked Australia into a better value-style market than the rest of the world.
“These are:
- Australia has a higher exposure to resources, financials and real assets, and is short on growth sectors such as tech
- Australia has less geographic value trap-like risk than global markets as Australian value-style stocks are not dominated by geographic issues such as high weights to structurally challenged European banks
- Australia growth-style stock valuations are crowded into a few low-quality names (by global FAANG standards), and
- the price to earnings ratio spread is typically higher on Australia value vs. growth than global value vs. growth.
“Within this value-positive environment, we believe that the Martin Currie Select Opportunities Fund is able to perform better than a ‘naïve Value’ index approach on an ongoing basis due to several fundamental ingredients:
- Our investment approach, which uses DCF valuations based on sustainable earnings, balanced with quality and growth. This means that we can do better through style and economic turning points.
- Our dynamic management of portfolio exposure to value/quality and direction, which means we show less downside than Value indices when they are out of favour.
“As you can see in the charts below, this has also produced better returns over the long term, with the Martin Currie Select Opportunities Fund providing 30-40% more cumulative alpha over 10 years than the “cheap” Value ETFs, be it Global or Australian.[2]
The Martin Currie Select Opportunities Fund provides investors with a diversified exposure to Martin Currie’s highest conviction stock ideas with attractive valuations while balancing risks through focus on quality and directional analysis.
Birtles says: “Our stock selection, driven by our proprietary fundamental analysis, is positioned to benefit from the continuation of the market’s rotation from growth to value. Our Australian focus provides investors with the opportunity to benefit from Australia’s geographic advantage within this thematic environment.”
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