Value investing has been back in focus recently as several headwinds have pushed many equities below fair value.
A new report from VanEck has highlighted why this is likely to continue.
Investors have been rotating away from high-priced growth stocks and focusing on tangible cash flows, robust balance sheets, and reasonable valuations – companies known as "value" companies.
The core focus of value investing centres on targeting companies perceived to be trading at bargain prices relative to their underlying business performance.
Often, they have been unfairly punished by the market because of recent negative publicity, a one-off lousy result, or they just operate in a less popular sector of the economy.
Therefore, value shares possess more robust fundamentals than their current share prices would otherwise indicate.
In simple terms, these shares are trading on the stock market for less than their intrinsic value.
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Value has been outperforming
According to VanEck, in May, the VanEck MSCI International Value ETF (ASX: VLUE) returned +15.08%.
This outperformed the MSCI World ex Australia Index by 10.55%.
Over the 12 months to 31 May 2026, VLUE returned +25.26%, outperforming the benchmark by 22.88%.
The report from VanEck also reinforced why this could continue.
Inflation pressure to persist
According to the report, value companies have historically been better placed in periods where inflation and interest rates remain elevated.
The ongoing oil crisis, alongside other factors such as historically high global government debt, could sustain inflationary pressures.
While markets have priced in a quick resolution to the US-Iran conflict, oil prices remain up around 56% from six months ago. Elevated oil and commodity prices have typically been a leading indicator of higher inflation.
US economic growth outlook still resilient
VanEck also reinforced that despite a number of growing pains, including mounting fiscal debt, tariff disruption, a shrinking labour force following immigration policy pivot, and an ongoing war with Iran, the US economy still looks resilient with a consensus forecast real growth at ~2% for 2026 and 2027.
In combination, somewhat resilient growth with growing long-term risk and persistent inflation pressure paints a stagflationary picture over the coming months, which is a potentially favourable environment for value companies.
Value outperformed in four of the last five stagflation periods.
Valuations remain compelling
Finally, VanEck believes that even after strong recent performance, value companies are not trading at stretched levels.
Value (based on the MSCI World ex Australia Enhanced Value Top 250 Select Index) is trading at levels close to its 10-year average.
From a relative value perspective, valuations are also at a multi-year low relative to broader equities.
The recent US earnings season has also confirmed that value fundamentals are meaningfully improving.
The past three quarterly results have seen value companies report more net beats than the benchmark. As of 31 May 2026, Q2 has been the strongest out of the past five quarters, with sell-side analysts forecasting higher year-on-year EPS growth than the broader market over the next two years.
ASX ETFs to target value
A simple way for investors to focus on value shares is with ASX ETFs.
Two options to consider include:
- VanEck MSCI International Value ETF (ASX: VLUE) – gives investors a diversified portfolio of 250 international developed market large and mid-cap companies, with high value scores as calculated by MSCI at each rebalance
- Vaneck MSCI International Value (AUD Hedged) ETF (ASX: HVLU) – tracks the same international value strategy as VLUE but adds currency hedging back to Australian dollars
More information on the pros and cons of currency hedging can be found here.
