A recent CFA Institute article debates the notion that the value factor’s long stretch of poor performance is due primarily to the increase in the percentage of intangible assets as a percentage of a company’s market capitalization.

Specifically, that “intangibles have increased as a percentage of the valuations of fast-growing tech companies and thus rendered value obsolete.”

According to the article, the narrative is compelling given how the market caps of tech companies have ballooned and are “based almost entirely on intangibles.” It offers an analysis showing the extremely low average ratio of book equity to market cap for the FAANG companies (8%):

But the CFA analysis also shows that, even though the percentage of intangibles has not increased as much in Europe or Japan, the value factor has “performed just as terribly,” there. It notes, “If intangibles were really the culprit, the value factor should not have performed so poorly in these markets.”

The analysis concludes, therefore, that while the rise in intangibles as a percentage of market cap may bear some responsibility when it comes to value’s poor performance, “it is a symptom rather than the disease. Put another way, correlation does not equal causation.”

“In order for cheap stocks to have mass appeal again,” the article asserts, “animal spirits need to be revived. But a structural transition from growth to value requires more than a simple narrative. Ultimately, it is about economic growth.”