Value Investing - staying the course after the "harsh winter"
Oh, the fickle finger of style investing! Value has outperformed growth for most of the last ninety years, but the last 10 years have on the whole been painful for value investors, with 2015 being particularly harsh. But is the tide now turning? In the last month, some great papers have been published on the value versus growth conundrum. Here are some of the best:
Staying the Course in Value Investing (Dodge & Cox, Apr 2016)
The authors argue that there are good reasons to believe that the return differential between growth and value may narrow and even reverse soon. Patience, persistence and a long-term investment outlook are essential to achieving long-term success.
Cyclicality and Value Investing (Research Affiliates, Apr 2016)
In this paper, Charles Aram and Jonathan Treussard of Research Affiliates examine value investing strategies from a historical perspective. They focus particularly on the harsher seasons of investing - the so-called "winters" - and the fact that for those value-oriented investors still facing "a long harsh winter," the summer will eventually arrive.
The Implications of a Nascent Value Revival (Franklin Templeton, Apr 2016)
During the first few months of the year, global value stocks posted the best quarterly returns relative to global growth stocks. This followed the longest period of value stock underperformance on record. This paper by Franklin Templeton examines this recent revival in value, and makes the case for why value stocks should be considered by investors.
The Siren Song of Factor Timing (Cliff Asness, Apr 2016)
This paper by Cliff Asness argues that it is folly to rely on the timing of market factors. Asness argues that the historic performance of factor timing strategies is weak and some of the back testing is dubious. Instead, he suggests that investors select factors carefully, based on long-run considerations, and use a multifactor approach, diversifying across a factors. He doesn’t say you should NEVER try to time factors, but as with market timing, it shouldn’t be relied upon to create long-term alpha.
Factor Performance in Emerging Markets (Lazard, Apr 2016)
The authors examine emerging market factor returns over a 10-year period, discussing short- and long-term patterns of performance, and comparing the results with data from developed equity markets. The paper also takes an in-depth study of the "value factor". The report is helpful, both for stock pickers and quants, helping to explain the considerations around stock-selection styles in emerging markets, and arguing for a multi-factor approach.
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