Where can investors find value in the market?

Everyone loves a bargain. But when investing, just like when you’re in a shop, it can be hard to tell if you’re snagging a great deal or if a low price is indicative of the quality on offer.

At a basic level, value investing involves having an eye for a diamond in the rough. Investors are searching for companies that they believe are worth more than the market is valuing them at. In contrast, growth investors tend to be less concerned about valuation and more focused on how rapidly a business can expand.

Value investors tend to lean towards mature and ‘unloved’ parts of the market. This might mean a region which is out of favour or a sector that isn’t catching the headlines.

Some sectors, such as energy, financials and utilities, are traditional hunting grounds for value investors. Often these can be heavily cyclical industries, meaning that their returns are highly linked to, and even exaggerated by, the broader economic environment. Weathering downturns, as well as enjoying periods of outperformance is therefore typical of long-term value investing.

Other industries are likely to be much less fruitful for value investors. For example, finding value in the tech space right now is about as likely as nabbing a Rolex from a pound shop.

How are different sectors valued?

The CAPE or cyclically-adjusted price to earnings ratio can come in handy in assessing valuation. This is a measure that compares the average earnings per share (adjusted for inflation) over a 10-year period against current share prices to provide a smoothed-out analysis of value. A higher number implies a premium valuation and a lower number a discounted one.

However, bear in mind that because the CAPE ratio looks across the past ten years, it deliberately dilutes current market perceptions of stocks, which may be well justified.  Current earnings are weighted the same as those from the past ten years, and forecasted earnings are not accounted for, despite the wider market factoring these into current share prices.

Here’s where CAPE ratios currently sit for different sectors. Spoiler alert, they are elevated.

Current and Median CAPE ratios across different sectors

Source: Siblis Research. Based on US sectors from 2022 to 2025

This can help to assess not only whether an industry has value potential, but where it stands versus recent years. Financials offer an interesting example. In the past few years, high interest rates have supported higher levels of profitability for the banking sector. So, while the sector’s median CAPE score sits at about 18 (for 2022-2025), it’s now nearing 22. This indicates that bargain buys are harder to find in that sector at the moment.

In fact, as previously mentioned, based on this measure, valuations look lofty for many areas of the market. Only energy, real estate, and healthcare sit near their median range.

This valuation landscape has led to many value-focused global equity fund managers allocating less than an index would to technology and communication services sectors, whilst preferring sectors such as consumer staples, consumer discretionary, energy, materials and healthcare. 

Looking for undervalued regions

Another angle for value investors may be to look at regions that have fallen out of favour. As with all value assessments, it’s important to determine why the region has cooled before determining if it’s a good place to buy. Investing based on a region can open up demographic and geopolitical risks. For example, the market may back off thanks to regime change or civil unrest. This year, we saw intense market fluctuations around tariff announcements, to which some countries proved far more sensitive than others.

Here are where main markets across different regions sit currently.

CAPE ratios by region

Source: Barclays, based on regional CAPE ratios across past 20 years

China is one region where the current score remains broadly in line with recent times. While China had gone out of favour in the past few years after it struggled to recover from the pandemic and made policy changes, its appeal has increased in 2025. The dip in China’s market held some value opportunities. For example, Tencent, which had a market price of over 600 Hong Kong Dollars (HKD) per share in 2021, dropped to under 200 HKD in 2022 as faith in China fell. But now, the stock has recovered to a price above 600 HKD.

Strategies for value investing

Value is easy to see in hindsight but difficult to pick out in the moment. Many investors (including Warren Buffet) use a strategy called margin of safety to help protect against downside risk. First, investors determine what they believe a conservative valuation of a stock should be. This can involve both quantitative and qualitative analysis. Then they identify a price below that value at which they would be happy to buy.

Using this method does not guarantee that the investor won’t lose money. But it does create a framework to support logical decisions in the heat of the moment.

If you don’t have the confidence or time to make these sorts of judgements on individual stocks, sectors or regions yourself, many funds will do it for you. A few on the AJ Bell Favourite funds list include Man Income (UK Equities), Schroder Global Equity Income, Lazard Emerging Markets and Lightman European. Don’t forget to check where these funds invest based on region and sector to see if they are good fit for the diversification you’re hoping to add to your portfolio.  

Actively managed value funds will typically have higher fees than choosing a passive option, as you are paying a professional to make investment decisions for you. Make sure it is worth the cost by adding funds that have a credible track record versus their (value-based) opportunity set and that also  bring genuine diversification to your portfolio.