Will The Small Value Rally Continue?

In their recent episode of the VALUE: After Hours Podcast, Brewster, Taylor, and Carlisle discussed Will The Small Value Rally Continue? Here’s an excerpt from the episode:

Tobias: Everybody knows small cap value has had this terrible run until recently, and it started running. So, the question that I get a lot from everybody is, this has been a very violent runup, is this [unintelligible [00:08:28] discount. Do you think this is going to still keep on going on? Bridgeway has taken a look at it. They’ve used price to book. It’s imperfect, but whatever, that’s what they’ve chosen to do. It’s still an interesting analysis. So, they say that most of the run has been in the size factor, which is an observation that I have made too. It’s more size than value, initially, for the small cap stuff, because it did impact– The run was in the smalls rather than in value. But small value was a beneficiary of that run too. So, they say, “Based on our analysis of relative book to market valuations through the end of March, prices of small value stocks would have to rise another 43% relative to the broader US market to get back to median historical levels.”

Jake: How much should April and May already do that?

Tobias: Well, it hasn’t done much. I think it’s been a little bit flattish through the last–

Jake: Oh, okay.

Tobias: There’s a squirt through beginning of Q4 last year, end of Q3 until really the end of Q1, which is March 31, and then, I think it’s been a little bit flatter recently.

Jake: Ran out of juice. [laughs]

Tobias: Yeah, it seems to have a little bit– I get a little bit nervous when I see all of the big techie stocks falling over the way they have, because I don’t think it’s rare that doesn’t bleed over into the rest of the market. It may not, but I think that it probably will end up doing that, and then I can’t see how the little value stocks survive something like that, but I’m hopeful that they do.

Bill: What has bled in?

Tobias: To the rest of the market?

Bill: Yeah, I mean we’re off the highs.

Tobias: You can still see the highs from here, though. What are we off?

Bill: Yeah, but it’s not as if big tech can’t see the highs. You know what I’m saying? Google is all of– I don’t know, it’s 23, 29, it top ticked at 24, 30.

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