Gerrit Smit, Head of Equity Management at international family office Stonehage Fleming
Growth is structural, value is tactical
To compare the merits of value investing over growth investing is to ignore their fundamental differences, according to Gerrit Smit, Head of the Equity Management team, manager of the award winning Stonehage Fleming Global Best Ideas Equity Fund.
“One is tactical, while the other is structural”, said Smit, speaking to clients at the Global Best Ideas – Update and Outlook webinar. “Tactical opportunities lie in value investing. They happen on a frequent basis, relative to growth investing”, he continued, citing the end of 2020 as an example to illustrate his point.
“At the end of 2020 through to the beginning of 2021, strong economic recovery offered many value investment opportunities which were very useful to shorter-term investors. Announcements around President Biden’s proposed infrastructure programme and the forthcoming vaccine solutions allowed investors to ride a wave of renewed confidence and take advantage of value opportunities”, explained Smit.
The drawback to this type of investing, he went on, is that these investment opportunities tend to be shorter-lived. “These tactical, value investment opportunities may not be sustainable for much more than a year or so, in my opinion”, he said. “They can add good value at times but necessitate much more active trading, bringing with it more chance of mistiming”.
For growth investors, equity investment is about investing for structural organic growth over time. “Now that most of the recovery phase has largely run its course and economies are in an expansionary phase, growth investors are well positioned to exploit those long-term structural growth themes that they believe in”, said Smit.
Of course, things can go wrong for growth investors, as they focus on the longer-term, explained Smit. “It may be, for example, that they aren’t quite prepared for the advent of a new technology replacing a current technology. Primarily, though, equity investing is about owning a business for organic growth. Short-term volatility, therefore, is less relevant, apart from creating another strategic investing opportunity”.
As a result, it makes little sense, argued Smit, to sacrifice growth investing in favour of value investing as a strategy for longer-term equity investing. “Growth is structural, value is tactical”.