Using data from the Fama–French online library to examine the ubiquitous HML series (long high book-to-market stocks and short low book-to-market stocks),2 we can illustrate just how long the value “winter” weather has been. But first let’s look at the value “climate.” The mean one-year rolling return since inception of the series in 1926 is nearly 5% and—to be conservative in the face of several extreme realizations to the upside (!)—the median of the series is still an impressive 3.7%. Furthermore, of the 1,063 monthly values for one-year rolling returns, 660 were positive (a “batting average” of more than 60%) despite streaks of negative prints as long as 29 consecutive months.3 In other words, value as defined by HML has been a reliable long-term winner, despite significant short-term disappointment along the way.
Over the shorter 1979–2015 period (1979 marking the launch of the Russell 1000 Value Index), “plain vanilla” capitalization-weighted value has faced massive headwinds, but in the same environment, fundamentally weighted, value-tilted strategies, such as the RAFI™ Fundamental Index™ series, have withstood the headwinds to generate long-term excess returns. Table 1 compares the performance of the FTSE RAFI™ US 1000 Index and the Russell 1000 Value to the cap-weighted Russell 1000 Index over the 1979–2015 period. FTSE RAFI earned an excess return of 1.87% for the period compared to the 0.31% excess return produced by the Russell 1000 Value.