April 19, 2019


Where is the value?

It’s no secret that since the Financial Crisis value stocks have underperformed growth stocks.   Many theories exist as to why this has happened, none of which can be confirmed as truth.  This begs the question “what does this last decade of value underperformance mean?”  The answer, truthfully, is that it means nothing.

For starters, value stocks have outperformed growth stocks over long periods of time.   Because of this, we have a mix of value and growth stocks in our portfolios, with a tilt towards value stocks.  What we do know is that there have only been three significant periods where value stocks have underperformed growth stocks in the last 90 years.  One of those three periods happens to be 2008(ish) to today (see chart below):

Source: Kenneth French’s Data Library, 1926-2017

Although there is uncertainty around how long these periods of value underperformance last, history suggests the frequency of a positive value premium has increased when you look at longer-term data (see chart below).

Source: Dimensional Fund Advisors

What does all this mean?

Quite frankly, it’s unlikely to expect value stocks to underperform growth stocks.  It’s even more unlikely to endure this underperformance over long periods of time.

This value premium isn’t all that steady or predictable, but a consistent investment approach that maintains an emphasis on value stocks will allow investors to more reliably capture the premium over the long run.

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