The nature of things - Value has had a tough time in the US of late but it certainly is not broken


Whatever The Value Perspective’s views on the attractions and advantages of the discipline, it is hard to deny value investing has been having a tough time in the US of late. As the following chart from the respected Brandes Institute Starkly illustrates, value has just experienced its worst five-year period of returns in the US in all the time the data has been available to that degree of detail.

There are a variety of possible arguments for why some of the largest US value houses have struggled over the last five or seven years – moving too early into investments, the disproportionately adverse effects of the credit crisis on financial stocks and so on – and many of these have their merits. But of course the broader question that has to be asked is, is value broken?

Would it come as a terrible shock to learn we believe that is in no way the case? Value works not because it is a really clever and hush-hush formula – the Coca-Cola of investment, so to speak – but because it is a manifestation of human nature and the idea people will grow very despondent or overly excited about their investments.

Whatever else may change – the economic environment, the prevailing investment ideas of the day and so on – human beings do not and, if you believe that, you believe value investing is not broken. If you believe in value investing, furthermore, you believe in the idea of mean reversion that stands at its heart. Looking at the above chart, that suggests now could be a great time to be investing in US value.

The fly in the ointment here is that, while the value part of the US stockmarket looks extremely cheap in the context of what we have just said, the broader US market is currently one of the most expensive in the world. As such, should you be looking to asset allocate to the US in any way at this point in time, you need to be very careful and targeted in your choice of stocks, funds and investment houses.

Important Information:

The views and opinions displayed are those of Ian Kelly, Nick Kirrage, Andrew Lyddon, Kevin Murphy, Andrew Williams and Andrew Evans, members of the Schroder UK Specialist Value Team (the Value Perspective Team), and other independent commentators where stated. They do not necessarily represent views expressed or reflected in other Schroders' communications, strategies or funds. The Team has expressed its own views and opinions on this website and these may change.

This article is intended to be for information purposes only and it is not intended as promotional material in any respect. Reliance should not be placed on the views and information on the website when taking individual investment and/or strategic decisions. Nothing in this article should be construed as advice. The sectors/securities shown above are for illustrative purposes only and are not to be considered a recommendation to buy/sell.

Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.