I think the key factor in markets, not just in Europe, equity markets over the summer of 2021, has been the resurgence, resumption of growth versus value and those two styles. There’s been another, I think, surge of outperformance by growth stocks versus value stocks. That is undoubtedly a headwind for us. We’re not deep value, nor are we full-fat growth, we’re always a blend style, but undoubtedly we are tilted more towards value than we are growth.
And actually, I think if you look over the summer months and then with the summer coming to an end, and perhaps we’ll come on to this, but I actually think it's created a real opportunity for investors in Europe. As the summer came to an end the extension, or even the stretch of the elastic, in terms of the valuation of growth stocks, I think, has gone way, way, way too far. And I actually think the vulnerable part of markets right now, and I would actually say extremely vulnerable, is highly rated growth stocks. I see a big opportunity as we speak on the other side of that.
The premium that people are paying for so-called ‘safety’, so-called ‘growth’, so-called ‘quality’ is extreme. And you can lament that and sometimes I do lament that and go, what are they doing, why are they paying ten times sales, 15 times sales, 40 times earnings? And I have watched stocks, a certain cohort of so-called growth stocks go from 25 times earnings to 35 times to 45 and 55 times earnings. And I think we've entered realms of madness in some of those names. And it's quite a big cohort.
Now you can lament that, and there are times I lament it, but you can also get a wee bit excited at the other side of it. And that is to buy, I don’t want to say the remainers, because that has all sorts of other connotations, but the remainders. Those left behind in unfashionable areas. I think the single biggest opportunity I see and it's probably why I'm… This is me excited, incidentally. But it's probably why I'm more excited than I usually am. I see a giant opportunity in European value.
And that is interesting because it always comes with its challenges. The value-conscious investor, which I've always seen myself to be. And actually, the winners in recent times have been the value-unconscious. But the value-conscious investor, like myself, I think has a terrific opportunity in European value. One of the challenges to a value investor or the value conscious is you have to patient and you have to be prepared to be lonely because you often have to be contrarian. Bring it on. I've been lonely many times in my investing career. It is.
And I actually think you’ve got entrenched strategists, entrenched economists, entrenched market observers, entrenched fund managers, entrenched stock pickers. And when you get entrenchment, you’ll get…the entrenched will argue their views. The value managers will say, the deep value managers might say, here comes inflation, it's coming. And the entrenched growth manager will say no, listen to the bond market, it's all fine, come on in, the water’s warm. And I’ve always said, never become entrenched. Never become polarised.
My position is, at the very least, it's transitory for longer. And when does transitory not become transitory? And please, let’s not forget that the bond market… We’re in an environment right now where everybody has faith, misplaced or not, faith in central banks to control the narrative, to control the bond market. Let’s not forget that history shows that… as somebody, I’ll say this unfashionably, but somebody I revered, really unfashionably, given that I came from Glasgow. Somebody I revered Margaret Thatcher once said you can't buck the markets, ultimately they will buck you. And the bond market is a proven master of bucking you.
In other words, what I'm saying is, don’t be surprised if the bond market… And it's not a forecast, but we shouldn’t be surprised if the bond market gets spooked and shows that central bankers are actually not in control. You can never be in control of markets, markets control us. Not the other way round. So, I wouldn’t be too surprised if markets were to start worrying about transitory for longer, i.e. inflation is hardwired in the system and could we be sat here in a year’s time, autumn 2022, and inflation prints are still higher than people expected. If that’s the case, and long before then, you could easily get a spooked bond market. That would be fun.
These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.
Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
The information in this article does not qualify as an investment recommendation.
The Janus Henderson Fund (the “Fund”) is a Luxembourg SICAV incorporated on 26 September 2000, managed by Henderson Management S.A. Henderson Management SA may decide to terminate the marketing arrangements of this Collective Investment Scheme in accordance with the appropriate regulation.
Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
Shares of small and mid-size companies can be more volatile than shares of larger companies, and at times it may be difficult to value or to sell shares at desired times and prices, increasing the risk of losses.
If a Fund has a high exposure to a particular country or geographical region it carries a higher level of risk than a Fund which is more broadly diversified.
This Fund may have a particularly concentrated portfolio relative to its investment universe or other funds in its sector. An adverse event impacting even a small number of holdings could create significant volatility or losses for the Fund.
The Fund may use derivatives with the aim of reducing risk or managing the portfolio more efficiently. However this introduces other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
If the Fund holds assets in currencies other than the base currency of the Fund or you invest in a share class of a different currency to the Fund (unless 'hedged'), the value of your investment may be impacted by changes in exchange rates.
Securities within the Fund could become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.
The Fund could lose money if a counterparty with which the Fund trades becomes unwilling or unable to meet its obligations, or as a result of failure or delay in operational processes or the failure of a third party provider.