The underperformance of value

August 2021

Despite a rebound in the first half of 2021, value-related investment strategies have significantly trailed their growth counterparts over longer-term periods. The performance struggles of value stocks largely began post-Global Financial Crisis and have been driven by a multitude of factors. This has led investors to decrease their exposure to value strategies or, at the very least, question their exposure to value stocks.

In this viewpoint, we review some factors which contributed to the poor relative performance of value stocks and search for clues as to what investors might expect from future performance.

We find that multiple trends have contributed to the poor performance of value. Adjustments to traditional approaches of defining value may improve risk-adjusted returns. There are likely positive future excess returns to be harvested for those willing to accept increased tracking error and risk relative to peers and core market indices.