Value Returns Could Improve, But Nobody Can Predict When

Given today’s environment of rising interest rates and increased volatility, the market appears to be at a “crossroads,” and the value investing strategy could be poised to make a comeback, writes Wall Street Journal columnist Jason Zweig. He warns, however, “you would be foolhardy to believe anyone who claims to be able to predict precisely when it will happen.” Since 1962, value stocks have (on average) outperformed growth stocks by 6.1 percentage points during the… Read More

The Realities of Mean Reversion

By Jack Forehand, CFA (@practicalquant)  “Importantly, reversion to the mean in the investment business extends well beyond the results for mutual funds. It applies to classifications within the market (small capitalization versus large capitalization, or value versus growth), across asset classes (bonds versus stocks) and spans geographic boundaries (U.S. versus non-U.S.). There are few corners of the investment business where reversion to the mean does not hold sway.” – Michael Mauboussin Mean reversion is one of… Read More

Hulbert: Value vs. Growth Valuation Spread Widest Since 2000

Earlier this month, price spread between value and growth stocks was the largest it has been since 2000, writes Mark Hulbert in a recent MarketWatch article. Hulbert offers data from Columbia University finance professor Kent Daniel showing that the average large-cap value stock’s price-book ratio is “barely half that of the average among large-cap growth stocks. Among small-cap stocks, value is even cheaper relative to growth.” The only time value has been relatively cheaper, according… Read More

Former FPA Manager – Bob Rodriguez – Shares Market Insights

Robert (Bob) Rodriguez, former managing partner at asset-management firm FPA, shared insights and opinions regarding various market-related topics in an interview recently published in Advisor Perspectives. Here are some highlights: On mean reversion:  Rodriguez emphasizes that a mean reversion will occur. He shares his belief that the “standards in the industry are being compromised; monetary policy has so totally distorted the capital markets. You are now into the eighth year of a period that is unprecedented… Read More

Rob Arnott Says Clock is Ticking on Smart Beta ETFs

A smart-beta pioneer, Rob Arnott of Research Affiliates warns that these investment vehicles are in a bubble, says an article in last week’s Bloomberg. Smart-beta ETFs organize securities based on quantitative factors like volatility or “cheapness”, and the article explains that Arnott’s position is nothing new (he publicly battled with Cliff Asness on the topic a year ago). In fact, his firm’s website (Research Affiliates specializes in “cheap-stock” ETFs) offers investors a tool to gauge… Read More

Chuck Royce – 4 Decade Small Cap Manager Talks Value’s Ultimate Rebound and the Downside of Indexing

Chuck Royce, small cap stock picker and pioneer, recently sat down with Consuelo Mack of WealthTrack to discuss his thoughts on the recent slump of value vs. growth stocks as well as his firm’s process for sourcing new investment ideas. Royce, who has been in the investment management business since 1972, explains that small cap stocks can offer outsized long term returns, potentially with less volatility (assuming you are investing in value stocks) compared to… Read More

Diversification & Rock Bottom Valuations In the Third Pillar

Rob Arnott and Christopher Brightman of Research Affiliates recently discussed the allocation and performance of PIMCO All Asset Fund, which goes outside mainstream investments into what they describe as the Third Pillar. Arnott explains that a three-year bear market in Third Pillar investments has impacted investors’ outcomes and outlooks. Although the fund’s 7% loss from 2013 to 2015 is significantly better than the relevant benchmarks, it appears disappointing in light of the excellent performance of… Read More

Is The Growth/Value Pendulum Swinging?

After a lengthy period of underperformance, value stocks have started to rebound. And in a recent piece for Proactive Advisor, Validea CEO John P. Reese says they are now poised to outperform their pricier growth stock counterparts. Reese talks about some of the reasons value stocks have struggled over the past decade, saying that investors have been incredibly risk-averse in the aftermath of the financial crisis and Great Recession and thus very hesitant to buy… Read More

The Trouble with Mean Reversion

Mean reversion is a key part of many investors’ strategies, and right now some are pointing to above-the-mean cyclically-adjusted price/earnings ratios as a sign that stocks are overvalued. But Morningstar Vice President of Research John Rekenthaler says mean reversion isn’t as simple as it may seem. If you take the current long-term mean and see where stocks were in relation to that mean in, say, 1992, it might look like it was an easy choice to buy… Read More