Boston Partners’ Josh Jones: ‘This has been the toughest environment for us since the late 1990s’

The $1.5bn fund, which Jones has been a co-manager of since 2013 alongside Christopher Hart and Joshua White, follows a global all-cap strategy and takes both long and short positions.

As with all of Boston Partners’ products, it use a three-circle-approach based on a bottom-up analysis of valuation, fundamental quality and business momentum, that is investing in companies with attractive value characteristics and strong business fundamentals, where there is a catalyst for positive change.  

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However, this approach has not been particularly favourable in recent years.

Jones said: “Generally speaking, the last 12 months have been the toughest environment for us since the late 1990s. In value, we have a robust quant model where we measure the performance of value, fundamentals and momentum. Value has significantly underperformed and so that has been a major negative detractor of the portfolio year-to-date.”

The manager compares the current economic climate to that of Q1 1999, shortly before the dotcom bubble burst and significant underperformance was seen among tech stocks.

He added: “There have been a few periods like today in history where the cumulative outperformance of growth to value was around 40%. But in the two-to-five years following, value recouped all of that and we think the same thing will happen again this time around.”

“I would guess that for the next two-to-three years, value will fare well but in the short-term – over the next six months or so – that may just be in the more defensive areas.” The manager highlighted insurance companies as an example of this and where he is currently overweight relative to the MSCI World Index.

Recession ahead

Meanwhile, Jones also states he would not be surprised if there was a global recession within the next 12 to 24 months as a number of factors such as central bank quantitative tightening are having an impact of equity and bond markets. As a result, he has been adjusting his portfolio to prepare for such an eventuality.

“We have sold down quite a bit of our tech and industrial exposure this year despite both areas being good performers,” he said. “They are not cheap and could be very risky if we do have a recession which is always hard to predict but I would not be surprised if we had one in the next 12 to 24 months.

“I think it will look more like the 2000 downturn as opposed to the Global Financial Crisis but a big concern is the build-up of corporate debt. That does mean however the environment is much better for shorting and we have started to see better performance on that side of the portfolio. We are hoping the effects of Red October will start to come through soon.”

‘Value’ as an investment style has rarely been cheaper

Some of the short positions the manager has benefited from include popular themes such as robotic industrials. He added: “People look for themes and any reason to put high multiples on them because it is nice to have a trend to follow, but some of them have collapsed and been very good shorts for us.

“I am sure there will be some great and interesting things to come but it will be like the internet in 2000 in that it will take ten to 15 years to really impact our daily lives. You did not want to buy an internet stock in the peak of the dotcom bubble.

“We try to take a pragmatic approach to investment. Valuations matter.”

Year-to-date, the strategy has lost 5.6%, behind its Absolute Return sector average loss of 0.08% and 8.5% return for the MSCI World index, according to FE.

About the author

Jayna is senior reporter and investment trust correspondent at Investment Week. She joined the publication in August 2015 after graduating with an MA in Multimedia Journalism from the University of Kent.

Jayna holds the NCTJ diploma and has experience in print, online and broadcast journalism. She is responsible for the Investment Week monthly podcast.

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