For about 25 years all the talk in the investment industry was about style. In those days, the industry was divided broadly into two camps: growth and value. They were considered to have very little overlap, so a growth manager such as BOE could be combined with a value manager such as Liberty Asset Management.
At one point growth unit trusts weren’t allowed to own resources shares — though, with hindsight, companies such as Mondi and Glencore could have qualified for the growth universe at times.
Anne Cabot-Alletzhauser, chief investment officer of the pioneering Joburg-based multimanager MCubed, was known as the queen of style, though not always in the sense that Vogue readers understand the term. She would split portfolios between value and growth managers to reduce overall volatility. The international multimanager SEI was also a pioneer of this approach.
In America there are S&P 500 value and growth indices with no overlapping shares, though the constituents of the indices swap. Not so long ago Facebook (now Meta) was a value share for a brief period before joining the Magnificent Seven.
There are several styles that have joined the lexicon, such as momentum, in which investors deliberately buy expensive shares hoping they will get more expensive. A more recent favourite is quality — as if anyone would seek to have a poor-quality portfolio.
This is primarily made of “compounders” — shares with dependable dividend flows. This was dominated by consumer staples such as Nestle and Unilever, but more recently includes tech shares with strong annuity flows such as Microsoft.
And just look at how style has evolved. At this year’s Investment Forum, organised by the Collaborative Exchange at Sun City, there was an alphabet soup of styles. Perhaps the most appropriate, at the home of the Gary Player Country Club, was GARY (growth at reasonable yield).
This style is followed by the Sarasin Global Dividend Fund run by Neil Denman who manages the Sarasin Global Dividend Fund.
Then there is resilient growth, as practised by US shop Loomis Sayles, which is a more sceptical, agnostic variation on growth.
Loomis Sayles portfolio manager Hollie Briggs pointed out to the Investment Forum that the end of 2021 was not a good time to pile into highly rated tech shares. Shares that had doubled over the previous 12 months were on price to sales multiples of 32.1, even higher than at the peak of the dot.com boom, when the frothier shares were on price to sales multiples of 22.7.
On average, today’s Magnificent Seven fell by 46% in 2022. Tesla was the worst performer, down 65%, and on its current form it could do even worse in 2025. Even the relatively stable and “boring” Microsoft and Apple both lost more than a quarter of their value.
Briggs says investors remember the 2023 recovery in these shares more vividly, but on a two-year annualised basis there was a 3.2% return, which was nothing to write home about relative to the long-term returns from US equities. Alphabet, Amazon and Tesla all lost money in aggregate over the two years.
Briggs says to achieve consistent alpha (excess return against the benchmark) there needs to be a combination of a long-term investment horizon, deep research into a focused number of shares, high conviction in terms of a concentrated portfolio, active risk management and a strong team culture.
Denman says in theory dividends should not matter. According to Modigliani and Miller’s dividend irrelevance theory, a firm’s dividend policy does not affect its value. But Denman says his fund favours companies that are prepared to return capital to shareholders. He quotes Warren Buffett’s 1987 letter to investors in which he said the heads of many companies are not skilled in capital allocation.
Buffett argued that most bosses rise to the top because they have excelled in areas such as marketing, production, administration or simply corporate politics. CEOs can be empire builders who want to expand their businesses and make acquisitions rather than return money to shareholders.
Some businesses have been poor investments after large acquisitions, such as Vodafone, which has never looked back from its high-priced acquisition of Mannesmann a quarter-of-a-century ago. At the other extreme has been the consulting group Accenture, which has delivered 12% compound annual dividend growth over five years and made a return on invested capital (ROIC) of 26% in 2024.
Another great GARY investment has been Home Depot, quite literally a bricks and mortar business, which has given 11% compound annual dividend growth over five years and produced a ROIC of 31% last year. Denman says dividend stability and reliability is an important tool to help a fund seek protection from inflation, alongside capital growth.
The oldest of all styles is deep value, going back to Ben Graham in the 1930s. Schroders retains a deep value team, which runs the well-established Global Recovery Fund. This style relies heavily on investor psychology, aiming to buy into shares when the rest of market has capitulated and believes a share is going nowhere. Value investors then sell the share once it has been rehabilitated but before markets become exuberant.
Investment director Andrew Williams says many value shares are in a position to return substantial cash to shareholders as they restructure, such as telecom giants BT and Verizon. The fund also invests in fallen angels in the midst of restructuring, such as Bayer and Intel. It has also bought shares with high returns on capital that still trade at a discount to the market, such as Kraft Heinz, Sanofi and Bristol Myers Squibb.
• Cranston is a former associate editor of the Financial Mail.
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