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Valuation and its role in investing

24 September 2018

Simon Laing, Head of US Equities, Invesco

It’s hard to have a conversation on the US markets these days without being drawn to a debate on value versus growth.

  • The vast outperformance of growth stocks over value stocks in recent years has benefitted many and hurt others
  • For us, the conversation on valuation begins with how we define our roles as investors
  • We can’t stress enough the importance of this: an investor becomes an owner of the business
  • We believe most investors should be value managers in the sense they are looking to exploit the difference between the current price of a stock and what they estimate is its intrinsic worth
  • We believe energy and health care offer very favourable risk/reward characteristics
  • Today we see lots of warning signs in technology.

It’s hard to have a conversation on the US markets these days without being drawn to a debate on value versus growth. And with good reason: the vast outperformance of growth stocks over value stocks in recent years has benefitted many and hurt others - count ourselves in the latter camp. We think it is important, however, to pick up on a nuance that is often overlooked in that debate.

The Invesco Perpetual US Equity Fund is not a value fund, but we do have an investment process that has valuation as one of its critical components. In fact valuation is nearly always the last determination in our investment decision and more often than not it is the reason we have missed some opportunities. But, more importantly, it has helped to avoid some howlers. For us, valuation is most definitely not the sole reason an investment is made, and that is what distinguishes us from traditional value funds and indices where valuation is the key criteria for potential investment.

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