Is the resurgence of value investing complete already?
In 1897 the American novelist Mark Twain was in London as part of a global speaking tour. A rumour was started that he was gravely ill, followed by a rumour that he was dead. The story goes that an American newspaper printed Twain’s obituary. According to widely-repeated legend, when asked about this by a reporter Twain said:
“The reports of my death have been greatly exaggerated”
What does this have to do with investing and value in particular? Having underperformed growth for the longest period on record, value has enjoyed a resurgence in recent months. This has not gone unnoticed, with the ‘rotation in style’ garnering much attention in the financial press. Dislocations between cheap and expensive parts of the UK equity market had become extreme, and in some areas the markets snap-back to its typical function as an arbitrator of value has been profound. This has led some commentators to declare that value’s outperformance of growth is complete, and the mean reversion is over.
Source: Schroders, Thomson Reuters Datastream, MSCI World Value Index Net Return vs. MSCI World Growth Index Net Return, 31 December 2016. Past performance is not a guide to future performance and may not be repeated
Let’s not get ahead of ourselves. The chart above shows the performance of Value vs Growth since 1974. Look on the far right hand side of the chart and there is a small uptick. That is value’s ‘recovery’. As things stand, we’re still just shy of two standard deviations away from the long-term average, and whilst past performance is no indication of future results, we believe it will take more than a few months to unwind the value style’s so-called ‘lost decade’. Value’s recent recovery is nascent in the context of history. Reports that investors have missed it could be, much like Twain’s death, greatly exaggerated.
I joined Schroders in 2010 as part of the Investment Communications team focusing on UK equities. In 2014 I moved across to the Value Investment team. Prior to joining Schroders I was an analyst at an independent capital markets research firm.
The views and opinions displayed are those of Nick Kirrage, Andrew Lyddon, Kevin Murphy, Andrew Williams, Andrew Evans, Simon Adler, Juan Torres Rodriguez, Liam Nunn, Vera German and Roberta Barr, members of the Schroder Global Value Equity 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.