There's more to 'value' investing than valuations

Semantics matter. Words carry associations that can't always be neatly translated into a different cultural context. First impressions often determine whether investors are prepared to allocate money to an investment strategy.  

So, when we made the long-established, UK-based Artemis Global Income Fund strategy available to investors in Europe, we gave it a name that conformed to the local nomenclature. By describing it as a 'global value' strategy, we hoped to make it more readily understandable to investors unfamiliar with the global equity income funds popular in the UK. 

In many ways, using the word 'value' made sense. Our focus on delivering income to our clients by passing on dividends means we buy companies that are generating a lot of free cashflow relative to their enterprise value. This has always pointed us towards 'value' stocks.  

Our portfolio has always traded on a significant discount to the MSCI AC World Index

Source: Artemis as at 3 July 2026

Compared with the MSCI AC World index, the Artemis Global Income Fund is significantly cheaper: it trades on a forward price-to-earnings (p/e) of 14.0x versus 23.0x for the benchmark. Its holdings produce a dividend yield of 3.6%, more than double the 1.7% dividend yield on the index.¹ 

Focus on these two blunt measures and our strategy has something in common with 'value' funds, when viewed from a distance. In aggregate, our portfolio has always traded at a significant discount to the market in price-to-earnings terms. But because our primary focus is not on p/e multiples but on identifying stocks where there is a solid investment thesis, not every company we invest in is cheaper than the market. Ours is a value strategy – but not as you may know it. Its aggregate p/e multiple is not a goal in itself. Instead, it is a by-product of how we construct the portfolio and how we generate returns.

Performance vs MSCI AC World, MSCI ACWI Value and MSCI ACWI High Dividend Yield indices since launch

Source: Lipper Limited, class I distribution units in USD from 19 July 2010 to 30 June 2026. All figures show total returns with dividends and/or income reinvested, net of all charges. MSCI ACWI Value and MSCI ACWI High Dividend Yield are not the strategy benchmarks but are shown to provide additional information only. 

The problem with relying on p/e

Low p/e multiples don’t always coincide with our conception of 'value'. Popularised by Benjamin Graham in the 1930s, p/e ratios are appealing in their simplicity and familiarity. They are easy to explain and easy to find – just look in the back of your newspaper. Yet while p/e multiples are a useful rule of thumb, they are flawed for at least two reasons.  

1) They don’t adjust for leverage. Where debt is a consideration, investors are better served by looking at metrics such as EV/ebitda, which compares the value of a company’s equity (its market capitalisation) and its debt (including its bonds) relative to its cash earnings.  

2) They fail to capture earnings growth. A p/e of 20x tells us something quite different about a company whose order book is full for the next decade than it does about an energy company whose earnings will fluctuate in sympathy with the price of crude oil. To understand value in the context of growth, investors are better served by the price/earnings to growth (PEG) ratio.  

We are valuation pragmatists, not value purists

Ignoring valuation is the cardinal sin of investing: buying expensive and selling cheap has never been a good policy. Likewise, buying something simply because it is cheap is another road to poor returns.  

Consider a consumer-goods company – perhaps a leading soup manufacturer – trading on a p/e of 7x and offering a dividend yield of 7%. Look solely at its p/e and it may appear to be a value stock. One could easily argue that it is cheap enough to buy even if its revenues are growing at a below-inflation rate. But would you buy it? Consider that: 

• The price of aluminium needed to make cans has increased by 49% in the past 12 months.²  
• Sales of snack foods are stagnating and consumers are showing less loyalty to brands than they once did.³  
• Supermarkets' own-brand products offer similar quality to branded goods, tend to be cheaper and continue to take market share.⁴ 

If you mechanically buy the cheapest 10% or even 20% of the market on a p/e basis, you'll own stakes in businesses similar to this. These are companies that trade on low multiples for good reason – companies that aren’t growing, that are carrying too much leverage or delivering poor returns on capital. Sound appealing? Not to us. We want to avoid these 'melting ice cubes' – companies whose slow disintegration means they end up justifying their low multiples. 

There's more to being a value investor than simply buying cheap stocks

So, although we like 'value', that is not our starting point. We don't apply hard p/e cutoffs to the stocks we buy and sell, and valuation is only one of the facets that our investment process considers.

We want to invest in companies where there is a solid investment thesis, that are aligned with our strategic and macro roadmap (including our regime-change thesis) and that generate above-average free cashflow yields. We also take care to build a portfolio that is diversified by geography, currency and by theme. The result is a strategy that has little in common with value indices and with most value funds. 

Source: Artemis, MSCI as at 30 June 2026 and (*) Bloomberg as at 3 July 2026.

We acknowledge that, most of the time, markets are not at a turning point; they are following a trend. But we are conscious that valuation can provide a safety net when markets suddenly turn. At a time of extreme and growing concentration in equity markets, and with long-term valuation multiples in the US close to the highs last seen in the dotcom bubble, we're happy to be described as ‘value investors’. But definitions matter. In our view, there's more to being a 'value investor' than simply buying cheap stocks – and there's more to 'value' than valuations alone.