The “horrible” performance of value stocks over the past twelve years begs the question of whether the strategy can still work, according to a recent article inThe Wall Street Journal.

“The dire years have produced plenty of theories for why value hasn’t worked of late,” the article says, citing the following potential reasons:

·      Markets are more efficient, as “algorithms take emotion out of investing.”

·      The increase in “capital-light companies means traditional value metrics such as price-to-book don’t work anymore.”

·      Low interest rates benefit fast-growing companies, “and so punish struggling value stocks which tend not to have a convincing story to tell about the future.”

The article highlights historical trends in the performance of value stocks, drawing parallels between today’s tech-stock environment and the last technologically disruptive period of the 1920s to 1930s when auto production went into full swing.

“There’s a similar industry bias today,” the article states, “value has heavy exposure to banks and other financial stocks, which helped it outperform before the crisis but dragged it down since. This time, the go-go growth stocks are mostly in the technology sector (although Amazon is a retailer), where value has little exposure.”

The hope of value investors, the article notes, is that the excitement of the tech stocks might be wearing off and that more mundane industries might benefit from applying new technologies. But it adds, “it isn’t so obvious that we’re at the end of the internet disruption yet. The big shift that allowed value to start performing again after World War II was that the disruption was done, and the old industries had vanished or adjusted to cope.”

The article concludes, “What keeps me clinging on to the value creed” is that any bad news is already priced into value stocks, which are now much cheaper than usual compared to growth.