A report published last month by investment management firm Research Affiliates, LLC addresses the question of why value investing (a smart-beta strategy using value indicators such as CAPE or price-earnings ratios) has “fallen out of favor in institutional portfolios,” according to an article in Chief Investment Officer.

The authors of the report argue that value investing is increasingly overlooked and that the “average” portfolio’s stock and bond holdings are comprised of 60% buy-and-hold in the S&P 500 and only 20% of value-based securities. The team compared the performance of the two components over a 53-year period and found that the value strategy had a “higher win rate over rolling 15- and 3- year periods as well as smaller excess losses in worst-case return scenarios.”

This trend, the authors argue, is a result of “cognitive bias” and that increased stock valuations have created a belief in a buy-and-hold equity strategy’s “ability to generate a reliable source of excess return.” Because value investing has shown more modest outcomes, investors associate the strategy with underperformance. According to the report, however, once rising valuations are taken into account equity outperformance “loses much of its punch.”

The authors conclude: “We owe it to ourselves to question why all long-term sources of excess return are not treated equally in our portfolios.”