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.