Value finally performed well during July, turning in its best month of 2018 on a spread basis. While the factor category is still deep in negative territory for the year, almost 85% of its underperformance is coming from the worst quintile outperforming the universe; meaning Value has mostly struggled because of expensive stocks outperforming, not cheap stocks lagging.
Value is the philosophical cornerstone of many legendary portfolio managers and is widely recognized as one of the most robust quantitative investment factors. Yet, despite its compelling conceptual merits and long-term record of superior returns, recent years’ underperformance of Value has lasted long enough to weigh on even 10-year performance records.
With an abundance of year-end updates in this edition of Perception for the Professional, we plan to release the content for this “Of Special Interest” section separately in mid-January.
It’s well known among market professionals that value investors are congenitally grumpy (for example, the retired keeper of our Undervalued & Unloved stock screen went by the internal nickname of “Eeyore.”) Worse yet, bad market conditions have lately combined with value managers’ bad genetics to make them an especially unhappy lot, even by their own dour standards.