Is value finally back? What the new earnings cycle means for advisers

Australian equities delivered a gain of more than 10 per cent in 2025. On the surface, it was a strong year, helped by falling rates and easing inflation.

But beneath the headline return, something more structural may be underway.

For advisers who have spent much of the past decade navigating growth dominance, crowded trades and index concentration, the next question is whether 2026 marks a genuine regime shift; or simply another false dawn for value.

An inflection point?

According to ClearBridge Investments’ head of Australian equities, Reece Birtles, last year may represent something more meaningful than a cyclical bounce.

“We are still early in the process of value reasserting itself. The disconnect between share prices and fundamental valuation remains wide, but the market is starting to show classic signs that the momentum phase, and crowded, index-dominated growth names are losing their shine,” says Birtles.

“Importantly, value-style stocks continue to be a low-beta, a lower-risk expression, providing fundamental earnings resilience in the current environment. Just as we saw during the Tech Bubble, in periods of exuberance rather than crisis, value provides downside protection precisely when euphoria unwinds.

“Despite this, many investors remain heavily skewed toward growth exposures, leaving their portfolios vulnerable if the full rotation toward value accelerates,” he notes.

For advisers, this is not simply a style debate: it is a portfolio construction question. After years of performance concentration and passive flows, how exposed are client portfolios to a crowded unwind?

Earnings momentum is shifting

What makes this period different from previous “value rallies” is the earnings backdrop.

Australia’s earnings outlook has strengthened materially, beginning with a sharp turnaround in earnings-per-share (EPS) expectations following the August 2025 reporting season.

“We’ve seen significant upgrades to expected EPS growth, moving closer to double-digit territory,” Birtles says. “That has been concentrated in resources, driven by iron ore at the index level, but also supported by copper, gold, lithium and rare earths. We expect to see stronger commodity prices improve Australia’s terms of trade and drive nominal GDP growth. That’s a great predictor for the revenue, earnings and dividend growth of Australian companies more broadly.”

Importantly, Australian consumer confidence and business condition surveys are now showing stronger readings than their US counterparts.

“On a relative basis, Australia had been a laggard globally for EPS growth, but heading into 2026, it’s starting to look materially stronger,” Birtles says.

For advisers managing globally diversified portfolios, this introduces a relative allocation question. If Australian earnings momentum is improving while US multiples remain elevated, how might we reframe a home bias? Does it suddenly look less like complacency and more like a fresh opportunity?

Dispersion creates opportunity

The widening valuation dispersion across the ASX is another defining feature of the current environment.

“Alpha and risk come from two things – stock selection and style risk. Given the extreme valuation spread within quality companies, this has been a very rich stock-picking environment for our style of investing,” contends Birtles.

That dispersion cuts both ways. It naturally creates fertile ground for active managers. But it also raises the risk for advisers relying purely on index exposure, where style concentrations can persist longer than expected.

The question becomes whether advisers are being adequately compensated for passive exposure to expensive segments that may no longer enjoy earnings momentum.

Income is quietly reasserting itself

Beyond style rotation and earnings upgrades lies another theme advisers cannot ignore: income.

In a falling rate environment, the opportunity to secure growing, franked dividend streams is increasingly relevant, particularly for retirees and SMSFs seeking resilience without excessive volatility.

“We expect income portfolios to deliver compelling yields this year, with expected franked income and growth well above the broader market. The companies we invest in are attractively valued, yet they are growing earnings and dividends faster than the market. In contrast, many expensive technology names and passive darlings are offering little, if any, earnings or dividend growth,” Birtles says.

The bigger question: what cycle are we in?

Markets rarely ring a bell at regime changes. Style rotations can stall; earnings upgrades can fade; growth narratives can revive quickly.

But what is different this time is the combination of three forces: valuation dispersion, domestic earnings revisions and a new macro environment. Gone are the days of a regime that unequivocally favours long-duration growth.

For advisers, the task is not to predict the perfect entry point for value. It is to assess portfolio vulnerability.

Nicholas Way

Nicholas Way is a contributing editor at The Inside Adviser and has covered business, retirement, politics, human resources and personal investment over a 50-year career.