RWC Partners UK value fund manager Ian Lance on the case for investing in value – both in general and now
Travellers on the London Underground are often warned to ‘Mind the gap’ for their own safety – but, when RWC Partners UK value fund manager Ian Lance urges investors to do something similar in the context of buying exposure to value, he has only their financial best interests at heart.
“Investors should have exposure to value now because of the ‘start points’,” he explains. “By that I mean the gap between, as it were, the ‘value of value’ and the ‘value of growth’ narrows and widens over time – and that gap today is probably close to its widest point for about 50 years.
“In other words, value stocks are very, very lowly-valued today relative to growth stocks, which are very, very highly-valued – and that tends to lead to periods of excess returns from value after that starting point.”
Broader case
What about the broader case for value? Here Lance points simply to it being one of the three main investment ‘factors’ that have been identified as generating significant excess returns over the longer term. “Most studies will identify value, momentum and size as the factors that generate excess returns – and, for that reason alone, we think investors should have some exposure to value investing,” he adds.
As for defining value investing itself, Lance argues what it is not is almost as important as what it is. “We would define value investing as simply the art of buying something for less than it is worth – or maybe you could refer to that to as its ‘intrinsic value’,” he says.
“Importantly, it is not just buying low price-to-earnings or low price-to-book companies, it is not simply buying ‘contrarian’ things and it is not buying just cheap rubbish. It is important, I think, to differentiate between ‘true’ value investing and maybe many people’s perceptions of what value investing is about.”
A full transcript of this episode can be found after this box while you can view the whole video by clicking on the picture above. To jump to a specific question, just click on the relevant timecode:
00.00: How would you define value investing?
00.36: Why should investors have an allocation to value in general?
00.58: And why should investors be seeking exposure to value now?
Transcript: Ian Lance, UK value fund manager at RWC Partners
How would you define value investing?
IL: We define value investing as simply the art of buying something for less than it is worth – or maybe you could refer to that to as its ‘intrinsic value’ – but what it is not, I think, is also important. It is not just buying low price-to-earnings or low price-to-book companies, it is not simply buying ‘contrarian’ things and it is not buying just cheap rubbish. So I think it is important to differentiate between, you know, ‘true’ value investing and maybe many people’s perceptions of what value investing is about.
Why should investors have an allocation to value in general?
IL: People should have exposure to value because it is one of the three factors that are identified as generating a significant excess return in the long run. Most studies will identify value, momentum and size as the factors that generate excess returns – and, for that reason alone, we think investors should have some exposure to value investing.
And why should investors be seeking exposure to value now?
IL: The reason investors should have exposure to value now is because of the ‘start points’. And by that I mean the gap between the ‘value of value’ and the ‘value of growth’, if you want to think about it like that, goes up and down over time – and that gap today is probably close to its widest point for about 50 years.
In other words, value stocks are very, very lowly-valued today relative to growth stocks, which are very, very highly-valued – and that tends to lead to periods of excess returns from value after that starting point.
