Why Value Has Been Lagging Growth

Amidst continued speculation that the value strategy is dead, asset manager Dimensional Fund Advisors argued that its growth performance that has been abnormally high relative to historical levels. This according to a recent article in Institutional Investor.

A research report by Dimensional contends that, over the past decade, value performance “has been more or less in line with its historical average: 12.9 percent versus 12.7 percent. We can see value has performed similarly to how it has historically behaved.”

The firm’s head of investment solutions, Marlena Lee, said, “We get so many questions from clients—’What’s wrong with value?’ Well, we thought maybe it’s not value, maybe it’s growth.” According to Lee, Dimensional has explored numerous theories to explain the relationship between value and growth—including low interest rates, quantitative easing, and the influence of big tech stocks–but the data fails to support any of them.

The research report notes that things can change quickly: “Some of the weakest periods for value stocks when compared to growth stocks have been followed by some of the strongest.”  The report concludes, “The theoretical support for value investing is longstanding—paying a lower price means a higher expected return. However, realized returns are volatile. A 10-year negative premium, while not expected, is not unusual.”