In his recent interview with Real Vision, Rob Arnott explains why the value effect is alive and well. Here’s an excerpt from the interview:
Arnott: Part of it is probably fed accommodation, and a large chunk of it is narrative that the marketplace embraces the notion that tech provides are the new nirvana and that tech companies will dominate the world.
Of course they’re brilliant disruptors, but disruptors get disrupted, and people forget that. The big issue, and the really interesting part is that value relative to growth has gotten cheaper and cheaper and cheaper by any measure.
Price to book, price to sales, price earnings, you name it, and has gotten cheaper by a wider margin than its under-performance.
So to be specific if you use the classic Fama French from 2007 to last summer, summer of 2020 ,value underperformed growth by 5800 basis points, huge!
But it got cheaper relative to growth by 7000 basis points, even bigger, which means that if it was priced the same as it was in 2007 relative to growth that value would have beat growth, which also means that the underlying fundamentals of value were getting better relative to growth, and so the value effect is alive and well.
You can watch the entire interview here:
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