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Value in value manager

Share markets around the world are at or near post GFC highs. Finding good value in shares is a tougher than usual ask. However there are still opportunities for investors. “Fallen angels” are one such source of potential value, and a celebrated value investor may in itself represent good value.

Active mangers (stock pickers) are under pressure at the moment. Current market conditions have favoured momentum and growth strategies. In a seeming contradiction, defensive investors have performed on the back of strong dividend yields. Generally speaking active returns are lagging index returns, putting them at the bottom of the fund manager pile.

Platinum Asset Management (PTM) has had a poor run. To some extent this is driven by the tougher environment for value investors. Sticking to its bottom up, individual company based approach demonstrates their discipline, but has hurt returns. In 2016 profits fell 6%, and funds under management dropped more than 15% as investors shied away.

Clearly the returns generated by different investing styles are cyclical. At some stage, value investors will return to the top of the heap. Investors committed to buying high quality businesses at lower share prices are likely looking at PTM right now.

Note the action at $4.85. Repeated bounces of this level make it an important support. It may also mean longer term investors are conducting “back-foot” buying campaigns. Chartists refer to this as a basing pattern, and it supports the idea that the share price has found a low.

At current levels PTM is trading on a PE ratio of around 16:1, well down from the highs around 26:1. The dividend yield (including franking) above 9% is also an attractive proposition. In my view this value manager is good value.

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