Market disruption often leads to mispricing, particularly when sentiment overrides fundamentals. Today’s continued macro uncertainty exacerbated by tariffs, geopolitical risk and increasing debt levels have led to meaningful dispersions in valuations that bring value investing to the fore. After more than a decade of consistent outperformance of growth indices, we are beginning to see a reversal take shape. Year to date, the MSCI World Value Index has maintained a notable lead ahead of the MSCI World Growth Index. While growth has still outperformed value over the long-term, the recent reversal may reflect a broader shift in market focus: one where fundamentals, valuations and capital discipline are being recognised and rewarded again. This presents a more favourable environment for forward-looking value investors with a long-term focus.
Value investors should aim to exploit the disconnects that arise when markets focus on short-term noise rather than long-term fundamentals. A disciplined, bottom-up valuation framework is especially important in today’s environment, where headline-driven volatility may push high-quality businesses below their intrinsic worth. Recent examples highlight how this philosophy can be applied in practice. Towards the end of 2024, concerns over domestic policy in France suppressed valuations across the board. Yet this dislocation has created attractive opportunities in globally diversified leaders such as Vinci and Capgemini; companies with strong balance sheets, global revenue bases, and exposure to long-term growth trends in infrastructure and technology services, respectively.
The broader picture in Europe is also compelling. Despite recent European outperformance, the US continues to trade at a 46% premium to the international universe on a forward P/E basis: well above the 2012-2018 average of 18%. This valuation gap may become harder to justify as rising US borrowing costs and the recent Moody’s outlook downgrade on US credit underscore growing fiscal challenges. As capital begins to rotate away from crowded trades and sectors outside of mega-cap tech start to re-rate, we continue to see compelling opportunities in non-US markets. The US remains a deep and diverse market with selective appeal, particularly in unloved sectors like health care and consumer staples, but increasingly, global investors may find better value and diversification potential abroad.
European equities have staged a quiet recovery that we believe reflects more than just a short-term rebound. Year to date, MSCI Europe outperformance against MSCI USA has reversed almost three years of relative underperformance. Though the region may lag in digital innovation, it is emerging as a leader in clean energy and decarbonisation. Investments in energy infrastructure and grid resilience are gathering pace, and companies like Enel and Vinci, both held in our portfolios, are well placed to benefit from these secular trends.
At the same time, European valuations remain compelling, fiscal policy has become more flexible, and investor sentiment remains subdued, leaving room for positive surprises. Combined with supportive currency dynamics, the outlook for select non-US equities appears strong, particularly those offering reliable cash flows and attractive skew of outcomes. In this context, a disciplined value approach is well positioned to identify mispriced opportunities and capitalise on the disconnect between fundamentals and sentiment.
As tariffs and trade policy continue to dominate the headlines and obscure long-term fundamentals, value investing offers a more disciplined approach in identifying opportunities. At Mondrian, our consistent, valuation-based process has historically demonstrated defensive characteristics during market downturns. We do not make explicit short term macro calls or attempt to time the market. Instead, we apply a disciplined framework, supported by rigorous scenario analysis, to manage risk and identify opportunity. Focusing on fundamental value uncovers resilient businesses trading at a discount to their long-term worth, especially when investor sentiment is pessimistic. With widening valuation dispersions and compressed multiples particularly in non-US markets, the opportunity set for value investors is expanding and offers fertile ground for consistent outcomes and capital protection amid continued volatility.
Disclosures
Views expressed were current as of the date indicated, are subject to change, and may not reflect current views. All information is subject to change without notice. Views should not be considered a recommendation to buy, hold or sell any investment and should not be relied on as research or advice.
This document may include forward-looking statements. All statements other than statements of historical facts are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results to differ materially from those reflected in such forward-looking statements.
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This material is for informational purposes only and is not an offer or solicitation with respect to any securities. Any offer of securities can only be made by written offering materials. The information set forth herein is a summary only and does not set forth all of the risks associated with the investment strategy described herein.
The information was obtained from sources we believe to be reliable, but its accuracy is not guaranteed and it may be incomplete or condensed.
It should not be assumed that investments made in the future will be profitable or will equal the performance of any security referenced in this document. Examples of securities will represent only a small part of the overall portfolio and are used to illustrate our investment approach. Any holdings are subject to change and may not feature in any future portfolio. More information on holdings is available on request.
Unless otherwise stated, all returns are in USD
All references to index returns assume the reinvestment of dividends after the deduction of withholding tax and approximate the minimum possible re-investment, unless the index is specifically described as a “Gross” index
Past performance is not a guarantee of future results. An investment involves the risk of loss. The investment return and value of investments will fluctuate.
Mondrian Investment Partners Limited is authorized and regulated by the Financial Conduct Authority (Firm Reference Number: 149507). Mondrian Investment Partners Limited is also registered as an Investment Adviser with the Securities and Exchange Commission (registration does not imply any level of skills or training).
