How can I invest in the ‘value’ bounce back?

Important information: the value of investments and the income from them can go down as well as up, so you may get back less than you invest.

Q: It sounds like value investing is finally doing a little better. Should I invest - and what are the options? 

A: Value investing has some ardent fans. That’s because it was a strategy that appeared to work very well until the financial crisis of 2007.  

Value investing is the art of identifying undervalued companies with unappreciated financial strength. Between 1974 and 2007, the MSCI Value index delivered excess returns of nearly 260% over the MSCI Growth index, according to JP Morgan numbers. 

Its origins go back further. The godfather of value investing was Benjamin Graham and his book, The Intelligent Investor, became the bible after it was published in 1949. His most well-known value disciple was Warren Buffett. Now 94, Mr Buffett has built a multi-billion dollar fortune through his investment company Berkshire Hathaway. There is some debate about whether he has drifted away from value as a strict discipline over time. Regardless, it’s worth considering that the shares returned an average 19.9% a year between 1964 and 2024 compared to 10.5% for the S&P 500, America’s most important stock market index.  

• Read: Warren Buffett’s greatest lessons for ordinary investors

How does value investing work? 

The value investor’s most common starting point is the price-to-earnings ratio. Low numbers point to companies with decent earnings compared to their current trading price. High dividend yields can also be a signal. But investors will use a range of other measures. The real art is putting aside emotions - the committed value investor will ignore the ‘story’ of gloom and make a dispassionate decision based on the numbers. 

Growth investors, in contrast, identify companies with high potential for earnings growth. They tend to have high price-to-earnings ratios but investors back them on the hope that earnings will grow fast enough to justify the higher entry point. They usually have lower dividend yields because of their higher valuation but also because these companies tend to prioritise reinvesting profits into the company - to fuel more growth - over dividends. 

When does value investing work? 

Value stocks tend to outperform during economic recoveries and periods of rising interest rates. There have also been notable periods of underperformance due to market fashions - during the dotcom boom in 1998-2000, racy growth stocks were en vogue.  

Growth stocks come to the fore during such bull markets and also when interest rates are low, as we saw after rates were pushed to virtually zero in the post-financial crisis years - the 2010s. Scottish Mortgage, the giant investment trust, is an example of an outright growth investing fund. It focuses on businesses, most in the technology space, that it believes have huge potential for the future. It had very high returns in this period. 

What has been happening lately?

As mentioned, growth beat value through the 2010s. Then the pandemic hit. In the recovery period, inflation soared. This helped value sectors such as energy and raw materials, which can serve as a hedge against inflation. 

But then value faltered in comparison with growth as the rally in the tech-focused Magnificent 7 stocks - Nvidia, Meta and Tesla and so on - really got going. 

The seesaw has now swung the other way with value outperforming growth in 2025. The uncertainty of the tariff war is a large part of this - investors have opted for safety. Better to buy companies with relatively higher earnings today (value stocks) rather than based on some uncertain future potential (growth stocks). 

• Get expert insights straight to your inbox with our free investor emails

US stock market styles since 2015: Value vs Growth vs MSCI World

US stock market styles over three months: Value vs Growth vs MSCI World

What are the options for value investors? 

There were once many more funds that followed the value mantra. But the decade slump in the 2010s saw many close, or drift to another style.

Our Select 50 list likes two value funds in the UK.  FTF Martin Currie UK Equity Income Fund aims for higher income than the FTSE All-Share index. It yields approximately 4.6% and includes holdings like Unilever, Shell, and AstraZeneca. The ongoing charge is 0.52%.

• View our select 50: our favourite funds - selected by experts

The second one is Fidelity Special Situations Fund, the fund once run by the highly regarded stockpicker Anthony Bolton. It has been run by Alex Wright since 2013. He has a significant exposure to financial stocks such as Standard Chartered and AIB Group. The fund has an ongoing charge of 0.92%.

Among global funds, Schroder Global Recovery makes the Select 50. The team have invested 34% of the fund in the US, 23% in the eurozone and 24% in the UK. The ongoing charge is 0.92% and the fund yields just over 2%.

• Read our latest fund focus: Schroder Global Recovery.

Schroders has a large value team. Interestingly, one of the most prominent managers of the Schroders value franchise, Kevin Murphy, recently left to set up a value boutique, Brickwood, with ex-Jupiter fund manager Ben Whitmore. Both managers are highly regarded value fund managers. The creation of this business may be good timing if the pivot from growth to value continues - which is a big ‘if’.

• See our current offers to help make your money go further

It is also noteworthy that Fidelity Special Situations has moved up our ISA best sellers list, ranking 15th in April. But that makes it the highest ranked value fund. It suggests, investors are not yet totally sold on the value story.

• Top 10 best-selling ISA and SIPP funds in April

If you’ve got a burning question you want to ask, why not drop us a line. Click here to ask us your question. 

• Read: The investments to consider when interest rates fall
• Read: Warren Buffett’s greatest lessons for ordinary investors
• Read: Select 50: why we have added this fund to the list