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The value opportunity?


Equity markets have been feeling the effect of central bank quantitative easing policies, resulting in high prices for “growth” stocks while “value” parts of the market have languished. However, valuation dispersion within sectors has created an exciting opportunity for value stocks.

Quantitative easing by central banks has distorted stockmarkets, with the result that "growth" stocks have outperformed strongly, while “value” areas of the market have languished in their wake. We have seen the longest underperformance of value since the “technology bubble” and as a result, value stocks are trading at unprecedented discounts relative to their expensive peers.

Not only have investors crowded into defensive assets, they have also favoured certain companies within each sector. As a result, the spread between the cheapest and most expensive stocks is the widest it has ever been, giving investors the potential to find hidden gems across a diverse range of sectors. For long-term investors, a reversion to the mean could offer significant upside, especially given the extreme valuation spreads we see today. It is important though to remain selective and identify genuine mis-pricing opportunities rather than get caught out by value traps.

The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested.

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