Pounding The Table
Khoziaeva recognizes that the Bridgeway Small-Cap Value Fund has benefited from strong tailwinds resulting from the rebound in U.S. small-cap value equities that began late last year. But she believes the fund’s recent surge is more than just being in the right place at the right time.
“It’s not magic or luck regarding what’s happening for us right now,” she says. “From a process standpoint, what’s behind our success are the people who created the models and designed the allocation, and our ability to maintain a consistent exposure. Rebalancing matters, and in this case rebalancing toward those categories that have exposure to the factors that have been out of favor for a long time period—which is value and size—has positioned us for this success.
“We’ve been pounding the table on value for a long time,” she adds. “When value turned around, that’s just a reality of the market cycles as factors go in and out of favor. And that’s where diversification comes into play with this fund. You want to have exposure to multiple factors.”
She points out that allocations to the quality and momentum factors help offset the value factor, improving the odds that the fund will have a more consistent long-term track record.
And that approach is informing the fund’s portfolio managers going forward. “We continue to invest the majority of our assets in value while diversifying into the other two categories of financial health and momentum,” Khoziaeva says. “When we studied the big gaps between value and growth and large and small during the past three years, there’s still a lot of catching up to do. There’s still room to grow both on value and size. I still believe in these two factors.”