One of the big dilemmas facing fund managers is whether to focus on growth or value stocks in this c...
One of the big dilemmas facing fund managers is whether to focus on growth or value stocks in this current volatile and directionless market. However, Anthony Kingsley, an analyst at MFS investments, said his company's approach is to pick the best stocks regardless of whether they are defined by the market as value or growth.
'There are set definitions for value and growth but these are difficult to follow, which is why we prefer a fundamental approach. This allows good returns in both value and growth markets,' he said.
The MFS fundamental analysis includes an assessment of a company's valuation, growth rate, and position within its industry.
He cited MFS's approach to Nokia. Although present in most European portfolios during 2000, MFS steered clear of this stock.
'Our analysts took the view that Nokia's assumptions about handset growth were extremely optimistic. The valuation simply didn't justify these assumptions, despite the fact Nokia was perceived as this great growth company, so we did not chase this stock. However, in 2001 we started to get more interested as the valuation came down and we realised the fundamentals may be bottoming out following a number of downgrades to estimates,' he added.
Another example is Matalan, the UK retailer. During 1999, MFS analysts identified Matalan as one of the most attractive stocks in the market in terms of fundamentals.
'We identified this and held the stock, but due to continuous contact with management we were able to identify that the fundamentals were starting to deteriorate and sold out of Matalan. Following the correction, we bought back in to this company a much cheaper price,' he said.
'So it isn't just about focusing on growth or value, but focusing on fundamentals. That fundamental approach enabled us to navigate the growth market of 1999, the value market of 2000 and what seems to be a blend of growth and value in 2001.'
In any case, he said the distinction between growth and value is becoming blurred. For example, in 1999, European software was a strong performer, while European food, beverages and tobacco were disappointing. Then, in 2000, those positions reversed.
'That begs the question about what exactly is growth and what is value,' he said. 'Can it be defined by individual sectors? In fact, during 2000, food, beverages and tobacco stocks performed well and continued to grow, as opposed to software stocks that not only saw valuations come down, but fundamentals in terms of the growth rate also deteriorated. So I really think there is an issue with defining it in terms of sectors.'
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