Does Value Still Belong in Your Portfolio?

,Anyone who speaks to me about investing knows that I am a huge fan of overweighting portfolios to take advantage of the size, value and profitability premiums. However, I am ALWAYS careful to share that there are no guarantees that these factors are going to “work” (i.e., be present and provide outperformance versus their relevant benchmarks) every year.

Value investing over the past decade

This past decade has caused more than a few individuals to question whether value investing is “past its prime.” In particular, the past decade in the US, the annualized compound return for value stocks has been 12.9% while growth stocks have seen a 16.3% annualized return (see this link for more details). Some have used this limited time frame as evidence that the value factor (premium) is no longer relevant.

The key, in my opinion, is to look BEYOND the past decade. If we go back to the time frame from July 1926 thorough June 2019 here is what we see:

• Value stocks return (compounded) 12.7%
• Growth stocks return (compounded) 9.7%

So, the past decade has seen value outperform its historic level by 0.2% while growth has outperformed by 6.6%.

Let’s look at two possibilities to explain this.

There are two possibilities here:

• First, the outperformance by the growth stocks (versus their historical average) is a “new baseline,” and growth stocks will provide higher returns in the future.

--OR—

• Second, the outperformance was an anomaly and the returns will gravitate back to their historical levels.

Historic trends support the value premium.

No one—and I mean no one! —can guarantee which of these two assertions is true. However, the historical trends are extremely strong and have shown that the value premium has been persistent over time and pervasive over geography. Furthermore, the value performance over the past decade has been nearly “spot on” with historical performance.

The value premium has been persistent over time and pervasive over geography.

In my opinion, there is no reason to believe that the value premium is “going away” anytime soon.

You can get a more detailed discussion of this topic by jumping to this link, which contains a PDF file going into more detail on this topic.

Would You Like More Support?

• Do you have a well-defined Investment Policy Strategy that is used to drive your investments in support of a comprehensive financial plan?

• If not, would you like to partner with someone who is used to helping people get through these struggles and (then, with confidence) implement portfolio strategies in a systematic manner while focusing on your desired outcomes?

If so, feel free to send us an email or give us a call. We’d love to have the opportunity to help you find a bit more peace of mind when it comes to investing.

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