Broker Check

Looking For Value In All The Wrong Places

October 30, 2017
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Few investment decisions have been more profitable over time than holding lower-priced "value" stocks compared higher-priced "growth" stocks.  Since 1927, the Fama/French US Value Index outperformed the US Growth Index by 3.3% per year and the US Market Index (CRSP 1-10) by +3.0% per year.  But value stocks have struggled on a relative basis for much of the time since the 2007-2009 bear market, and most value managers and investors are feeling the heat.

Consider the recent comments by billionaire hedge fund manager David Einhorn:  

"The market remains very challenging for value investing strategies, as growth stocks have continued to outperform value stocks. The persistence of this dynamic leads to questions regarding whether value investing is a viable strategy." 

But a closer look at recent returns reveals that value stocks aren't performing that poorly relative to the market.  What is happening is traditional value investing approaches -- active management and indexing -- aren't adequately capturing the returns available from the value segment of the market. The DFA US Large Value Fund, which employs a more modern and refined "asset class" approach to targeting the value stock universe, has outperformed the S&P 500 by over 1% per year,  the value index by over 2% per year, and the average active value manager by 3% per year.

Value investing isn’t “dead,” most value investors have just been looking in all the wrong places.

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Past performance is not a guarantee of future results. Index and mutual fund performance shown includes reinvestment of dividends and other earnings but does not reflect the deduction of investment advisory fees or other expenses except where noted. This content is provided for informational purposes and should not to be construed as an offer, solicitation, recommendation or endorsement of any particular security, products, or services.