In his latest interview with CityWire, Bill Nygren discussed why he’s excited about the prospects of a value recovery. Here’s an excerpt from the interview:
Nygren: I think the fact that the Oakmark fund has continued to perform well versus value indices shows that our consistent investment philosophy continues to work. So the question becomes, ‘What has gone wrong for large value?’.
If one looked at small-cap value funds, one would see similar underperformance. Therefore, clearly, it has not been a ‘large’ problem but rather a ‘value’ problem.
The underperformance of value indices relative to growth has been extreme, measured in either time (10 years) or magnitude (twice the return). It has not been caused by poor earnings performance of value names. The result is a historically high dispersion of the P/Es of rapid growers compared to P/Es of cheap stocks.
Normally, the rapid growers sell at two to three times the P/E of the lowest P/E stocks. The spread today is more than twice normal. Our expectation that the P/E dispersion will revert to normal is why we’ve been, and continue to be, excited by the prospects for a value recovery.
The fact that growth investors have earned so much more than value investors over the past decade has caused a lot of value investors to throw in the towel. We believe patience will be rewarded.
You can read the entire interview here:
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