It's not a question of style

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Having the right style won’t be totally necessary to succeed with investments for a while.

Tuesday, September 23rd 2003, 7:15AM

by Philip Macalister

Over the past few years there has been major differences between the performance of value and growth managers. In the most recent period value has been the place to be and growth managers have struggled to perform and during the tech bubble of the 1990s growth was in.

Fiduciary Trust International executive vice president Sheila Hartnett-Devlin summed up the experience of growth managers when she was in Zealand last week presenting at an ING adviser roadshow: “It’s been painful as a growth manager”.

However, her co-presenter, Mike Cantara from MFS Financial Services, says managers who stick to their style have had periods of under-performance over recent years because of the strong differential.

He says there is a positive side to this. If a manager is under-performing when style is against them it shows they have remained “true-to-label” and not given in to the temptation to modify their style so it is closer to whatever is in vogue.

“Style drift”, as it’s called, has been an issue in the funds management world for some time.

Right now value is still outperforming growth however the differential is shrinking and markets are getting back to on equilibrium stage.

“We are moving into a more normalised environment,” Hartnett-Devlin says. “Growth and value are co-existing” This means that investors won’t be penalised as strongly if they have a style bias the wrong way in a portfolio.

Cantara agrees with Hartnett-Devlin that market are entering a “more normalised environment”. However, he notes that says that markets will remain cyclical in nature.

While the two managers agree on the issue of where style is heading, and that the outlook for international shares is far more positive than it has been for some time, they have contrary views on the technology sector.

Currently Fiduciary is heavily overweight technology, believing that the mantra of the tech bubble still has currency. That is increased future productivity will come through the use of improved technology.

Because of this the company is currently 5.1% overweight tech, and prefers the bigger more established software players as opposed to start-up, ideas companies.

Cantara, on the other hand likes technology, but is more bearish on this position.

He says MFS is underweight the sector, partly due to valuation issues.

The issue is to do with the balance between earnings growth and valuation.

“We prefer to buy these companies at a significant discount,” he says.

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