A recent article in Verdad Research defends small-cap value investing by arguing that “though the past few years have been painful for small-value investors, this is perhaps a once-in-a-century buying opportunity in this deeply out-of-favor asset class.” The article notes that two statistical predictors for future small-cap returns—high yield spread and growth/value price ratios—are at “some of their highest readings ever on record” which represents “an extremely rare ‘double eclipse’ for market historians.” High yield… Read More
A new study from the research firm Grantham Mayo Van Otterloo (GMO) shows that the erosion of the value premium over the last decade was due to “changes in relative valuations that favored growth over value, but now value stocks are priced attractively.” This according to an article in Advisor Perspectives. Relative valuations, the article explains, “refer to the difference in metrics, such as price-to-book ratios, between value and growth stocks.” The article reports that… Read More
By Jack Forehand, CFA (@practicalquant) Never tends to be an overused word in investing. Don’t get me wrong, I am big believer that the past is often the best guide to the future. I think base rates are the best tool we have when trying to predict what will happen going forward. But relying on the fact that something has never happened in the past to predict that it will never happen in the future… Read More
Value investing has been a losing strategy in recent years, and value stocks are currently trading at the steepest discount in history. This according to a recent article in MarketWatch. “There’s never been a worse time in history to be a value investor,” the article says, citing a recent comment by JP Morgan’s chief U.S. equity strategist, Dubravko Lakos-Bujas that “the relative price-to-book spread of the cheapest vs. the most expensive portfolio is at 9… Read More
The current market cycle is testing the patience of value investors, according to an article in Barron’s. “Although value managers haven’t lost money, they have watched growth managers steadily pedal away,” the article reports, citing Morningstar data showing that over the past decade large-cap growth funds have returned an average of 15.6% annually, versus 13.2% for large-cap value. Historically, the article notes, value investing has lagged growth for long periods but eventually outperformed. This market… Read More
The valuation dispersion occurring in the market is presenting the “opportunity of a decade,” according to a recent article in Bloomberg. The article reports that a portfolio manager at the Julius Baer Group says the historic spread between the most and least expensive stocks is presenting strong buy opportunities for investors. The article also quotes Kairos Pegasus Fund’s Federico Riggio, who argues that along with above-average earnings growth, the inexpensive segments of the equities market… Read More
For the “quantitative whizzes” at Sanford Bernstein, the chasm that exists between the valuations of the cheapest and most expensive stocks around the world—which has now reached levels “rarely seen in decades of history– is a bullish omen for value stocks.” This according to a recent Bloomberg article. “Add easier financial conditions with stronger economic sentiment in Europe and Asia, and the stage is set for a tentative rebound in the investing strategy over the… Read More
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