Unearthing quality in unloved value stocks

Value stocks may have enjoyed a welcome change in fortunes in recent weeks, but they have been swimming against the tide for years as investors have sought the perceived security of quality and low-volatility stocks.

This is reflected in a record spread between the earnings multiples of value stocks versus low volatility stocks. Elevated levels of uncertainty (the Global Economic Policy Uncertainty index currently stands at a multi-decade high) and rock bottom bond yields have driven investors into the arms of companies with predictable earnings in an unpredictable world. This has resulted in a winner-takes-all market where just a handful of stocks in the FTSE All-Share, including the likes of Diageo, Unilever and Compass, have enjoyed gains in the past 12 months while the rest of the market has l...