Or perhaps we’ve been defining value all wrong? That’s another theory: As intangible assets from patents to human capital become increasingly critical to corporate success, it makes no sense to use book value in multiples, as the common definitions of the factor often do.
Quant Scourge
Value’s decline has been a particular scourge to quantitative funds. Discretionary investors can be flexible with how they execute their mandate -- but quants are by definition systematic, and value is backed by one of the longest histories and some of the most academically rigorous research among factors.
Quants like to remind investors that from 1926 through 2018, various metrics of value beat growth by at least 1 percentage point in annualized returns, O’Shaughnessy Asset Management research shows.
That’s little consolation to fund managers struggling to explain away years of underperformance.
“Value requires patience and so might be hard to ‘arbitrage away,’” Sanford C. Bernstein strategists led by Inigo Fraser Jenkins wrote in a note last month. “Given its long payback time and periodic bouts of 10-year underperformance, people risk losing their jobs if they hold it over the business cycle.”
This article was provided by Bloomberg News.