globalen
Quant chart: Value accelerates to strongest start in decades

Quant chart: Value accelerates to strongest start in decades

16-05-2022 | Insight

Value has achieved the best start to a calendar year in over 35 years. Despite this rally, the Value factor remains attractive both in terms of absolute and relative valuations.

  • Matthias Hanauer
    Matthias
    Hanauer
    Researcher
  • Sebastian  Schneider
    Sebastian
    Schneider
    Researcher

Following the harsh ‘quant winter’ of 2018-2020, spring sprung for value investing in 2021, especially over the first quarter. In similar, but more pronounced fashion, value has enjoyed another strong start to a year in 2022. Indeed, value stocks have significantly outperformed their growth peers year to date, supported by wide valuation spreads, heightening growth concerns for firms with lofty valuations,1 and the tailwind provided by the narrative around value and interest rates.

Figure 1 | Value is quick off the blocks in 2022

Source: Refinitiv, Robeco. The figure shows the cumulated return spread per calendar year between the top and bottom quintile portfolios of an enhanced value strategy. The investment universe consists of constituents of the MSCI Developed and Emerging Markets indices. Before 2001, we use the FTSE World Developed index for developed markets (going back to December 1985), and for emerging markets, the largest 800 constituents of the S&P Emerging BMI at the semi-annual index rebalance (going back to December 1995). The portfolios are equally weighted and rebalanced monthly. The sample period is January 1986 to April 2022.

But how does the current rally fare against the value resurgence witnessed following the tech bubble of the late 1990s? Figure 1 depicts the cumulative performance of the enhanced value factor2 per calendar year. Interestingly, 2022 marks the best start to a year in our sample period of just over 35 years, surpassing the strong performance that was seen at the beginning of the 21st century.

Value remains attractive both in absolute and relative terms

Despite the recent rally, the spread in valuation multiples between expensive and cheap stocks remains at exceptionally high levels, similar to those observed at the height of the tech bubble in the late 1990s. Moreover, value is also attractively priced in absolute terms as its forward price-to-earnings ratio is below 10x.

1 See: Wittenstein, J. April 2022, “Stock market meltdowns have FAANGs looking increasingly toothless”, Bloomberg.
2 We define value as in Blitz, D. C., and Hanauer, M. X., January 2021, “Resurrecting the value premium”, Journal of Portfolio Management. More specifically, the enhanced value strategy is based on a composite of book-to-market (R&D adjusted), EBITDA/EV, CF/P, and NPY metrics. Value stocks are sorted into quintile portfolios based on the valuation composite, in a region and sector neutral manner for developed markets and in a country neutral manner for emerging markets. Quintile portfolios are equal-weighted and rebalanced monthly. Our sample comprises the standard MSCI All Countries Index constituents, i.e., large and mid-cap stocks across both developed and emerging markets.

Stay informed on our latest insights with monthly mail updates
Stay informed on our latest insights with monthly mail updates
Subscribe
Quant charts
Quant charts

Check out our Quant chart series to uncover insightful highlights from our research.

Read all articles
Logo

Disclaimer

The information contained in the website is solely intended for professional investors. Some funds shown on this website fall outside the scope of the Dutch Act on the Financial Supervision (Wet op het financieel toezicht) and therefore do not (need to) have a license from the Authority for the Financial Markets (AFM).

The funds shown on this website may not be available in your country. Please select your country website (top right corner) to view the products that are available in your country.

Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, annual and semi-annual reports, which can be all be obtained free of charge at this website and at the Robeco offices in each country where Robeco has a presence.

By clicking Proceed I confirm that I am a professional investor and that I have read, understood and accept the terms of use for this website.

Decline