Value styles explained: Choosing the right manager for your portfolio

Written by: Barrow Hanley Global Investors

How well do you know your value manager?

While value investors share a philosophy of buying companies trading at a discount to fair value, their portfolio characteristics and performance can differ considerably depending on market conditions and each manager’s definition of value. Thus, even if you have an allocation to value, do you know which style it follows? Does it behave as expected in different market environments — does it defend a portfolio when needed and outperform in difficult conditions?

Not all value investing strategies are created equal: some outperform in growth-led markets but lag in value rallies. Correlations with the value index also vary, raising another question: when value leads the market again, will your chosen strategy benefit?

A review of recent performance

Growth investing massively outperformed value through 2020, when the MSCI World Growth Index beat the MSCI World Value Index by nearly 35% — the largest divergence in any calendar year since the inception of these indices (see Figure 1).

Value regained its footing in 2022, as inflation and higher-for-longer rates pressured growth stocks, and the World Value Index outperformed by 23%. Yet only ~35% of value managers beat the index. In contrast, 2023 and 2024 brought renewed growth stock strength, fueled by AI and easing rate expectations; market breadth in 2024 meant fewer value managers outpaced the index.

Figure 1 – Calendar year performance (gross) of MSCI World Growth and MSCI World Value indices, 2020 - 2025

These shifts prompt key questions: did your value manager perform in line with their stated style; and are they positioned for a value regime similar to 2022?

Value styles defined

Value investors’ assumptions about growth, quality and leverage vary widely, driving distinct portfolio characteristics and performance. To examine biases, Barrow Hanley categorized 61 strategies into three value styles: traditional (sometimes called deep value), defensive and relative value. Most managers fit into one of these groups, even if their portfolios might blend elements of each.

Defensive and traditional value managers are easier to define by valuation metrics, beta, sector positioning and capture ratios. Relative value strategies are more difficult, sometimes resembling benchmarks or leaning toward either defensive or traditional.

Inspecting sector positioning illustrates distinctions:

1. Defensive value managers tend to overweight consumer staples, health care, communication services and utilities, while underweighting cyclical sectors like energy, financials and materials.
2. Traditional value managers conversely tend to hold more cyclical exposure.
3. Relative value managers have historically favoured the information technology, communication services and consumer discretionary sectors, lagging peers in value-driven environments.

Table 1: Average sector weighting (as at March 31, 2025)

*Barrow Hanley Global Value Equity.

Sources: eVestment, FactSet. Material presented is based on the BH GVE composite and not an individual account.

These preferences affect valuations: traditional strategies trade at deeper discounts, while their defensive and relative peers appear more expensive.

Table 2: Average valuation fundamentals (as at March 31, 2025)

*Weighted harmonic average on forward price.

Sources: eVestment, FactSet. Material presented is based on the BH GVE composite and not an individual account.

Performance in up and down markets

Distinctions are clearer when observing capture ratios and beta. Defensive value strategies defend well in down markets but lag in rallies, while traditional strategies excel in up markets but may struggle in down markets. Relative strategies fall in between, capturing less upside than traditional peers but protecting more on the downside. Beta trends are linear: defensive strategies show lower beta, traditional higher and relative value are more in line with overall market risk.

Table 3: Average up/down capture and beta vs. MSCI World Value (as at March 31, 2025)

Source: eVestment, MSCI. Material presented is based on the BH GVE composite and not an individual account. The Mackenzie Global Value Fund is sub-advised by Barrow Hanley Global Investors and replicates the Barrow Hanley Global Value Equity strategy. The benchmark for the Mackenzie Global Value Fund is the MSCI World Value Index.

After more than four decades of investing, we maintain a consistent value style and discipline. With valuation gaps between growth and value still meaningful and with economic catalysts favouring growth, we believe value is positioned for strong performance ahead and our approach is well positioned to benefit.

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