Read on Twitter
1/ As an explanation for the performance of value vs growth, interest rates may be a red herring (subject of my @IChronicle Ideas Farm column this wk). What does this mean for the recent #ValueInvesting revival?
A short thread and a poll… https://www.investorschronicle.co.uk/ideas/2021/04/08/ideas-farm-half-truths-about-the-value-revival/
A short thread and a poll… https://www.investorschronicle.co.uk/ideas/2021/04/08/ideas-farm-half-truths-about-the-value-revival/
2/ Low rates make earnings far off in the future more valuable. Growth stocks offer more earnings in the future than value stocks, so low rates justify a widening valuation gap (until recently the gap was at historic levels)
3/ But as a GMO has recently argued, value investors actually make money from cheap stocks rerating until they are no longer classed as “value”. The wider the valuation gap, the bigger the rerating upside. This should offset the divergence in valuations. https://www.gmo.com/europe/research-library/the-duration-of-value-and-growth/
4/ However, during value’s underperformance from 2007 to mid 2020, @RA_Insights has actually found the gains from this rerating process didn’t increase but dropped to just 1.1% a year compared with an average of 5.9% in the prior 44 yrs. https://www.researchaffiliates.com/en_us/publications/journal-papers/reports-of-values-death-may-be-greatly-exaggerated.html
5/ Does this mean value really is broken or that the recent revival has much further to run?
A poll:
A poll:
