Short-sightedness, rates moves and a potential boost for Value

Short-sightedness, rates moves and a potential boost for Value

18-11-2022 | 投資觀點

The strong Value rebound from its 2018-2020 winter has triggered numerous questions on whether it can sustain this run. We address this by assessing how investors can frame current valuations, examining the relationship between interest rates and value performance, and looking at the role of growth expectations by studying the dynamics for value and growth stocks.

  • Matthias Hanauer
  • Guido  Baltussen
    Head of Factor Investing
  • David Blitz
    Chief Researcher
  • Sebastian  Schneider

Speed read

  • Spread in valuation multiples remains wide by historical standards
  • Relationship between Value and interest rates is not structural
  • Extrapolative growth forecasts also drive the Value premium

The poor performance delivered by value strategies from 2018 to 2020 was accompanied by an extreme widening of valuation multiples between value and growth stocks, with the former getting cheaper than the latter. But the solid recovery over the last two years could perhaps leave some investors wondering whether the value style is now less attractive.


Value factor remains relatively cheap in historical terms

In Figure 1 we show the valuation spread of the value factor,1 meaning the differences in valuation multiples of value and growth stocks.2 As we control for valuation differences that are normally observed between both portfolios, a valuation spread that is above one indicates cheapness, while a reading below one implies that the factor is relatively expensive.

Figure 1 | Composite valuation spread of the enhanced Value factor

Source: Robeco, Refinitiv. The chart shows the composite valuation spread between the top and bottom quintile portfolios of the 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 value spread is the average spread of the book-to-market (R&D adjusted), EBITDA/EV, and CF/P. The sample period is January 1986 to October 2022.

Interestingly, the spread has only shrunk slightly during this period. More specifically, it is still wider as at the end of October 2022 than it was at the beginning of the value winter in 2018. To put things into perspective, the current spread is even wider than it was at the peak of the dot-com bubble in 2000.

Furthermore, value is not only cheap from a relative perspective, but also on an absolute basis as it trades at a forward price-to-earnings ratio (PE) of slightly above 8x. Therefore, the medium-term return expectations for Value are bright, especially if valuations revert to ‘normal’ levels (more on this in the full article).

Despite the strong recent recovery, the value factor is still cheaper than it was at the beginning of its drawdown. This is because, while changes in the value spread explain a large portion of the value returns, they do not explain them entirely. The remaining variation stems from three components: namely carry, portfolio migration and changes in fundamentals (these are discussed in detail in the full article).

Value is not just a beneficiary of rising yields

A popular question is whether the latest rise in interest rates caused the recent value comeback. In our 2021 article,3 we already investigated this notion and documented that while the relationship has been evident recently, it is much weaker over the long run and for longer-return horizons. In this section, we revisit this issue but approach it in a less technical way.

Figure 2 illustrates the relationship between US value returns and contemporaneous changes in the US 10-year Treasury yield. The chart confirms our previous research results as we find little to no evidence that the value factor correlates to interest rate changes for the period spanning from January 1986 to December 2017. However, the correlation has been higher over the last five years.

Figure 2 | Value returns and interest rate changes

Source: Robeco, Refinitiv, FRED. The chart shows the relationship between U.S. value returns and contemporaneous changes in the U.S. 10-Year Treasury yield. The investment universe consists of U.S. constituents of the MSCI Developed Market Index. Before 2001, we use the FTSE World Developed Index (going back to December 1985). The sample period is January 1986 to October 2022.

But even in recent years, the relationship has been far from perfect. In fact, changes in interest rates explain only a small fraction of the variation in the value returns. Interestingly, the last few months indicate that the relationship may have weakened again. For instance, May 2022 was an excellent month for value while yields slightly decreased, whereas August 2022 was a rather bad month for the factor even though interest rates increased by nearly 50 basis points.

Based on this analysis, we believe that the relationship between value returns and interest rates is not structural – or causal – but more a temporary phenomenon that might well provide some tailwinds for value in the months ahead. However, while the positive relationship between value and yields might persist for some time, possibly due to some self-fulfilling prophecy, we do not believe that interest rates will be the decisive factor for value in the years ahead.

Growth stocks do not necessarily have higher future growth

One reason many investors might believe that interest rates drive the returns of the value factor could be based on the argument that growth stocks exhibit longer duration than their value counterparts. Therefore, they should benefit from a lower discount rate being applied to their cashflows and suffer from rising yields.

We acknowledge this line of reasoning but believe that the relationship is ambiguous, meaning one could argue that value stocks are ‘bond-like’ as their prices are driven less by growth expectations and more by their earnings and dividend power in the years ahead. This would imply a negative relationship between value returns and interest rates.

That said, we looked into whether expensive stocks really do have higher future growth. In our analyses, we sort stocks based on valuation multiples and not on past or expected growth. And while companies with high historical growth in sales or earnings typically trade at higher multiples, future long-term growth is much harder to forecast.

Figure 3 depicts the previous five-year realized growth in earnings and analysts’ long-term (five-year) earnings per share (EPS) growth expectations at portfolio formation (t=0), and up to ten years (t=120) after this for the cheap (‘value’) and expensive (‘growth’) quintile portfolios versus the universe. The chart shows that the spread for both historical growth and growth expectations between value and expensive firms is indeed highest at portfolio formation.

Figure 3 | Realized and expected earnings growth for Value quintiles after portfolio formation (AC)

Source: Robeco, Refinitiv, I/B/E/S. The chart shows the previous 5-year realized growth in earnings and the long-term (5-year) EPS growth expectations of analysts for the top (value) and bottom (expensive) quintile portfolios of the enhanced value strategy at portfolio formation (t=0) and up to ten years (t=120) after portfolio formation. For each measure and month, we compute the median for both the cheapest and most expensive quintile and deduct the universe median. 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 sample period is January 1986 to October 2022.

Analysts expect expensive companies to generate about 4% higher EPS growth than the average company, while value firms are expected to deliver around 2.5% lower growth. These numbers are remarkably similar to the realized growth numbers that the two groups of stocks achieved over the five years before portfolio formation. Therefore, it seems that analysts extrapolate past growth into the future.

This difference in growth expectations is a key reason why investors are willing to pay a higher price for growth firms. However, these differences are not persistent. As shown in the chart, the spread in both growth expectations and realized growth rapidly converges in the years after portfolio formation, with value stocks experiencing improvements in growth realizations and expectations, whereas their expensive peers encounter deteriorating growth realizations and expectations.

After eight years, we see that the actual difference is less than 1%. Therefore, investors appear to be overpaying for the expected growth differences at portfolio formation, as analysts and other market participants extrapolate historical growth too far into the future. In other words, realized growth does not live up to expectations. As a result, we view these converging growth expectations as one of the driving forces behind the value premium.

1 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.
2 The ‘value spread’ is expressed as the ratio of a basket of valuation multiples of the top and bottom quintile value portfolios. We control for value spread differences that are normally observed between both portfolios, such that a value spread above one indicates cheapness. Since cheap stocks by definition have higher fundamental value to price ratios than their expensive peers, it is particularly important for the value factor to scale the value spread by its historical normal level.
3 Baltussen, G., Hanauer, M. X., Schneider, S., and Swinkels, L., September 2021, “What valuations and interest rates tell us about equity factors”, Robeco article.

Important information

The contents of this document have not been reviewed by any regulatory authority in Hong Kong. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. This document has been distributed by Robeco Hong Kong Limited (‘Robeco’). Robeco is regulated by the Securities and Futures Commission in Hong Kong.
This document has been prepared on a confidential basis solely for the recipient and is for information purposes only. Any reproduction or distribution of this documentation, in whole or in part, or the disclosure of its contents, without the prior written consent of Robeco, is prohibited. By accepting this documentation, the recipient agrees to the foregoing
This document is intended to provide the reader with information on Robeco’s specific capabilities, but does not constitute a recommendation to buy or sell certain securities or investment products. Investment decisions should only be based on the relevant prospectus and on thorough financial, fiscal and legal advice.
The contents of this document are based upon sources of information believed to be reliable. This document is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.
Investment Involves risks. Historical returns are provided for illustrative purposes only and do not necessarily reflect Robeco’s expectations for the future. The value of your investments may fluctuate. Past performance is no indication of current or future performance.



1. 一般事項


此網站由Robeco Hong Kong Limited(「荷寶」)擬備及刊發,荷寶是獲香港證券及期貨事務監察委員會發牌從事第1類(證券交易)、第4類(就證券提供意見)及第9類(資產管理)受規管活動的企業。荷寶不持有客戶資產,並受到發牌條件所規限。荷寶在擴展至零售業務之前,必須先得到證監會的批准。本網頁未經證券及期貨事務監察委員會或香港的任何監管當局審閱。

2. 風險披露聲明

Robeco Capital Growth Funds以其特定的投資政策或其他特徵作識別,請小心閱讀有關Robeco Capital Growth Funds的風險:

  • 部份基金可涉及投資、市場、股票投資、流動性、交易對手、證券借貸及外幣風險及小型及/或中型公司的相關風險。
  • 部份基金所涉及投資於新興市場的風險包括政治、經濟、法律、規管、市場、結算、執行交易、交易對手及貨幣風險。
  • 部份基金可透過合格境外機構投資者("QFII")及/或 人民幣合格境外機構投資者 ("RQFII")及/或 滬港通計劃直接投資於中國A股,當中涉及額外的結算、規管、營運、交易對手及流動性風險。
  • 就分派股息類別,部份基金可能從資本中作出股息分派。股息分派若直接從資本中撥付,這代表投資者獲付還或提取原有投資本金的部份金額或原有投資應佔的任何資本收益,該等分派可能導致基金的每股資產淨值即時減少。
  • 部份基金投資可能集中在單一地區/單一國家/相同行業及/或相同主題營運。 因此,基金的價值可能會較為波動。
  • 部份基金使用的任何量化技巧可能無效,可能對基金的價值構成不利影響。
  • 除了投資、市場、流動性、交易對手、證券借貸、(反向)回購協議及外幣風險,部份基金可涉及定息收入投資有關的風險包括信貨風險、利率風險、可換股債券的風險、資產抵押證券的的風險、投資於非投資級別或不獲評級證券的風險及投資於未達投資級別主權證券的風險。
  • 部份基金可大量運用金融衍生工具。荷寶環球消費新趨勢股票可為對沖目的及為有效投資組合管理而運用金融衍生工具。運用金融衍生工具可涉及較高的交易對手、流通性及估值的風險。在不利的情況下,部份基金可能會因為使用金融衍生工具而承受重大虧損(甚至損失基金資產的全部)。
  • 荷寶歐洲高收益債券可涉及投資歐元區的風險。
  • 投資者在Robeco Capital Growth Funds的投資有可能大幅虧損。投資者應該參閱Robeco Capital Growth Funds之銷售文件內的資料﹙包括潛在風險﹚,而不應只根據這文件內的資料而作出投資。

3. 當地的法律及銷售限制




4. 使用此網站



5. 投資表現



6. 第三者網站

本網站含有來自第三方的資料或第三方經營的網站連結,而其中部分該等公司與荷寶沒有任何聯繫。跟隨連結登入任何其他此網站以外的網頁或第三方網站的風險,應由跟隨該連結的人士自行承擔。荷寶並無審閱此網站所連結或提述的任何網站,概不就該等網站的內容或所提供的產品、服務或其他項目作出推許或負上任何責任。荷寶概不就使用或依賴第三方網站所載的資料而導致的任何虧損或損毀負上法侓責任,包括(但不限於)任何虧損或利益或任何其他直接或間接的損毀。 此網站以外的網頁或第三方網站皆旨在作參考之用。

7. 責任限制




8. 知識產權


9. 私隠

荷寶保證將會根據現行的資料保障法例,以保密方式處理登入此網站的人士的數據。除非荷寶需按法律責任行事,否則在未經登入此網站的人士許可,不會向第三方提供該等數據。 請於我們的私隱及Cookie政策 中查找更多詳情。 

10. 適用法律


如果您已閱讀並理解本頁並同意上述免責聲明以及同意荷寶收集和使用您的個人資料,用於私隱及Cookie政策 所列的收集和使用個人資料的目的(包括用於直接推廣荷寶的產品或服務),請點擊“我同意”按鈕。否則,請點擊“我不同意”離開本網站。