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Boutique bets on value turnaround for 2021

— 1 minute read

Boutique fund manager Maple-Brown Abbott has insisted the recent upturn for value stocks will persist into the future, going against the mould of the last 10 years.

Dougal Maple-Brown, head of Australian equities at Maple Brown-Abbott commented there had been “tough conversations” and lost clients during the last decade, as growth stocks overtook their value counterparts. 

Value stocks in Australia have underperformed by roughly 50 per cent against growth during the last 10 years. 

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But there was a reversal of the trend in the December quarter, with value stocks such as major banks and energy companies coming out on top. Maple-Brown Abbott is currently overweight on both sectors.

The number one question from the firm’s clients has been whether the rise has had a flash of good luck or if it is part of a greater sustained turn, with the firm arguing for the latter. 

“The traditional growth stocks went nowhere, and of course in a strong market, that’s the underperformance so we did well out of that but the stocks… did not de-rate at all,” Mr Maple-Brown said. 

“So it’s all been flat, so they didn’t go backwards, they just went sideways.”

He added the value spurt has continued into January, but there is “plenty more to go”, with valuations expected to adjust.

Hyper-growth stocks, such as Afterpay and PolyNovo, which had a strong run through 2020, continued to excel through the December quarter, but Mr Maple-Brown believes they will eventually de-rate, while value stocks will continue to rise. 

“Afterpay is by far the biggest company [in Australian tech] worth over $40 billion at the top of our market, somewhat scarily still yet to make a profit,” he said. 

The price-earnings ratios for Australian technology growth stocks went from around 50 times forward earnings to 100 times forward earnings, but the most expensive stocks have already begun to come down from their peaks. 

“Why the stocks did this – who knows? But when they derate and they will, that… will be poor for growth and good for value.” 

Geoff Bazzan, head of Asia-Pacific equities, echoed his colleague, commenting markets are beginning to tilt towards value. 

“We… saw some very encouraging signs of the market rotation in Asia, and we continue to position our portfolio to focus on those parts of the market where we feel the recovery in earnings is underappreciated,” he said.

“In particular, we believe there are a number of overlooked companies offering strong valuation support, robust cashflow, and attractive dividend yield – something we think will be a feature of Asian markets for many years to come.”

Listed infrastructure is also expected to outperform in 2021. Andrew Maple-Brown, managing director of global listed infrastructure said there were good opportunities in the space, despite the pandemic-fuelled downturn in 2020.

“While the COVID-19 outbreak had a clear and negative effect on specific subsectors – in particular airports – the majority of businesses didn’t see a significant impact on their activity,” Mr Maple-Brown said.

“For instance, regulated utilities experienced very little change, while tollroads took an initial hit but have shown signs of a quick recovery once COVID restrictions are lifted.

“We did see the beginning of a recovery in global listed infrastructure following the news of a vaccine, and the possibility of international travel picking up, but performance has remained subdued. Our view is that this provides a good opportunity for investors as we enter 2021.”

Maple-Brown Abbott has also signalled it is looking to add key staff as it expects further growth through the year ahead. 

“We’ve seen an uptick in engagements from investment teams, many of which are coming from big, large global firms that are seeking out what boutiques offer and we think that will be an attractive thing and an interesting thing for us through the year,” Maple-Brown Abbott chief executive Sophia Rahmani noted. 

Another key factor for the firm in 2021 are the upcoming Your Future, Your Super reforms for the superannuation sector, where super trustees will be required to tell their members by October if they have been underperforming. 

Ms Rahmani commented the firm’s clients in the super space will change how they approach investment decision-making and asset allocation.

 

Boutique bets on value turnaround for 2021
Boutique bets on value turnaround for 2021
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Sarah Simpkins

Sarah Simpkins

Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth. 

Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio. 

You can contact her on [email protected].

 

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