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Value investing posted some modest victories in 2021. Whilst growth outperformed at the index level, the outperformance was narrow, propelled by a handful of large cap companies. Down the market cap scale value mostly outperformed – a notable divergence that may signal further improvements for low priced securities in 2022. 

2021 saw broad based returns in European equities, but with some concentration of returns at the top. ASML, Novo Nordisk, Nestle, Roche and LVMH – all relatively expensive growth companies – were the top 5 contributors – providing 30% of the benchmark return. In the S&P, the story was similar with the top 5 of Apple, Microsoft, Nvidia, Alphabet and Tesla providing 33% of the benchmark return.

These expensive large stocks helped growth outperform value within large caps, but by a smaller amount than might be expected – by 7% in Europe and just 3% in the US.


In mid caps value performed better. In Europe, mid cap value underperformed mid cap growth narrowly. In the US, mid cap value outperformed by over 11%.

In small caps the story was stronger still for value. In Europe, small cap value outperformed small cap growth by 1.7%. In the US small cap value outperformed by over 14%.

There is a possibility that value’s stronger performance down the market cap scale may be leading a turn in large caps. The last major turning point for value vs growth was in 2007-2008. Value had had a strong run from 2000 – 2007, outperforming growth by 95%. Whilst at the large cap level, value turned down during 2007, in small caps, value’s relative performance started to weaken during 2005 – 2006. Small caps were able to provide a “heads-up” about a future turn in large caps. There is no guaranteeing this signal will apply this time, but today small caps tend to be less exposed to retail investor and momentum flows, and so this divergence of performance in small caps merits attention.


As we have noted in a prior note, aggressive growth also underperformed in 2021. The Ark Innovation Fund and the Goldman Sachs Non-Profitable Tech Basket underperformed the S&P by over 50%. When the most levered or aggressive approaches within a particular investment style struggle, this can also provide an early signal about future returns for the style as a whole.

None of these observations ensure stronger performance for lower priced value securities in 2022. However, turning points are often associated with a narrowing of breadth as leaders start to become laggards, and vice versa. Expensive growth securities have performed strongly for a decade with strong breadth across geographies and across the market cap scale. This was not the case in 2021. Only a handful of large cap growth companies propelled growth’s outperformance. These divergences ought to moderate enthusiasm for expensive securities in 2022.

The opportunity cost of owning a value fund is declining. Investors are forfeiting very little in return, enjoying a higher yield and are protecting themselves from one of the central risks to equity markets this decade – multiple compression.

The LF Lightman European Fund returned 17.2% in 2021 in GBP, narrowly outperforming the benchmark and outperforming the European value index by a larger margin.

We remain optimistic about the absolute and relative returns for the LF Lightman European Fund in 2022. The Fund has a median 2022 PE ratio of 9.01, a price to sales ratio of 0.96 and a price to book ratio of 1.04. We expect a median earnings growth of our holdings of 5% – 10% in both 2022 and 2023. The expected gross dividend yield of the fund is 4.5% in 2022 and 4.7% in 2023. The balance sheet of the portfolio has never been stronger, with 82% of our non-financial holdings at net cash or with net debt to ebitda of less than 1x. This sets the scene for strong buy backs boosting returns on top of earnings growth in the coming years. 

Sources: MSCI, Bloomberg, Lightman Jan 2022.

Dividend yields are gross of costs and taxes and assumes all dividends will be paid in cash. Actual yields will be net of costs and any applicable withholding taxes and the Lightman may choose stocks over cash as dividends or an isser may only mandatorily pay dividends in form of stocks or another security. There may result in the yield being lower than the amount shown above. 


This document is owned by Lightman Investment Management Limited (“Lightman”, “we”, “us”). Lightman Investment Management Limited (FRN: 827120) is authorised and regulated by the Financial Conduct Authority (“FCA”) as a UK MiFID portfolio manager eligible to deal with professional clients and eligible counterparties in the UK. Lightman is registered with Companies House in England and Wales under the registration number 11647387, having its registered office at c/o Buzzacott LLP, 130 Wood Street, London, United Kingdom, EC2V 6DL.

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This document is intended for ‘Eligible Counterparties’ and ‘Professional’ clients only, as described under the UK Financial Services and Markets Act 2000 (“FSMA”) (and any amendments to it). This document is not intended for ‘Retail’ clients and Lightman does not have permission to provide investment services to retail clients. Any marketing document is only intended for ‘Eligible Counterparties’ and ‘Professional’ clients in the UK, unless it is being used for purposes other than marketing, such as regulations and compliance etc.

Collective Investment Scheme(s):

The collective investment scheme(s) – LF Lightman Investment Funds (PRN: 838695) (“UK OEIC”, “UK umbrella”), and LF Lightman European Fund (PRN: 838696) (“sub-fund”, “UK product”) referenced in this document are regulated collective scheme(s), authorised and regulated by the FCA. In accordance with Section 238 of FSMA, such schemes can be marketed to the UK general public. Lightman, however, does not intend to receive subscription or redemption orders from retail clients and accordingly such retail clients should either contact their investment adviser or the Management Company Link Fund Solutions (“Link”) in relation to any fund documents.

The collective investment scheme(s) – Elevation Fund SICAV (Code: O00012482) (“Lux SICAV”, “Lux umbrella”), and Lightman European Equities Fund (Code: O00012482_00000002) (“sub-fund”, “Lux product”) referenced in this document are regulated undertakings for collective investments in transferrable securities (UCITS), authorised and regulated by the Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg. In accordance with regulatory approvals obtained under the requirements of the Law of 17 December 2010 relating to undertakings for collective investment, the schemes can be marketed to the public in Luxembourg and Norway. Lightman, however, does not intend to receive subscription or redemption orders from any client types for the Lux product and accordingly such client should either contact their investment advisor or the Management Company LINK FUND SOLUTIONS (LUXEMBOURG) S.A. (“Link Lux”) in relation to any fund documents.

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Risk warning to all investors:
The value of investments in any financial assets may fall as well as rise. Investors may not get back the amount they originally invested. Past performance is not an indicator of future performance. Potential investors should not use this document as the basis of an investment decision. Decisions to invest in any fund should be taken only on the basis of information available in the latest fund documents. Potential investors should carefully consider the risks described in those documents and, if required, consult a financial adviser before deciding to invest.

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