Hugh Sergeant’s outlook: Huge anomalies to exploit
The good news for 2022, is that whilst there are clearly some very expensive equities to invest in, there are also very many good, value stocks, which one can invest in without diluting profits and cash flow growth potential. Last year should have been a Value and Recovery year. Instead it became another year when capital flowed into large cap growth companies which were therefore re-rated (again), led by the cheerleaders for this trade, the US mega-cap growth stocks.
“... was another frustrating year for me, but it sets up one of the biggest relative investment opportunities of my career.”
As a result, this was another frustrating year for me, but it sets up one of the biggest relative investment opportunities of my career. The key investment factors I exploit are at relative lows: Value is at a multi-generational low point, many recovery stocks are yet to see share price recovery, small caps have lagged badly recently especially in a global context. These factors all provide a rich set of PVT anomalies in this segment of the market (including growth stocks, for example whilst Nasdaq hits all times highs over half of the constituents are down more than 50%), re-opening plays are back to relative lows, the best hedges on interest rate rises, namely banks, still trade on big discounts to book value, consumer cyclicals are depressed because of cost of living increases which are now overly discounted, China internet stocks trade on single digit earnings multiples, non-US stocks trade at record discounts to their US peers, with UK equities one of the most under-rated. I could go on.
So, there are huge anomalies for us to exploit, and perhaps we are now seeing the catalysts for these anomalies to generate alpha, with Omicron worries fading, and real yields turning less negative as Central Banks withdraw from artificially depressing bond yields. If the very recent swing in big picture dynamics continues, we are very well placed.
The information in this article has been prepared and issued by River and Mercantile Asset Management LLP (trading as “River and Mercantile” and “River and Mercantile Asset Management”) registered in England and Wales under Company No. OC317647, with its registered office at 30 Coleman Street, London EC2R 5AL.
River and Mercantile Asset Management LLP is authorised and regulated by the Financial Conduct Authority (Firm Reference Number 453087) and is registered with the US Securities and Exchange Commission as an Investment Adviser under the Investment Advisers Act of 1940.
This article is directed at professional clients. The information in this article should not be relied on or form the basis of any investment decision.
ES R&M UK Recovery Fund
This fund enables investors to have targeted exposure to those companies we believe to have particularly strong potential to create value, following a period of depressed profits that could enable significant recovery.