Andrew Dyson appeared on 'Bloomberg Markets: What'd You Miss?' to discuss value investing.
Read the transcript
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- Let's talk big data now because one quant shop is turning to Main Street to make sense of the latest stock market craze. QMA has found that conviction among managers working at value stock corporations, well it's surged, proving that corporate insiders have a big appetite for their own stocks.
The CEO and chairman of QMA, Andrew Dyson, is here with us as is Bloomberg news asset reporter Sarah Ponczec who's written up this great piece of research that you've done over at QMA.
Andrew talk to us. Basically, your data is showing that if you work for a value-based company you're actually quite into buying your own stock at the moment, versus a growth company.
- [Andrew] That's right. So, the research started because we were observing more broadly that the actual disparity in performance of value versus growth companies is bigger than it even was in the tech bubble, you know 20 years ago. And so, we want to see, well is there some fundamental reason why that might be the case. And we looked at a couple of things, but the very interesting one that you've talked about was what's the buying behavior of these managers like if you compare buying at value companies versus buying at growth companies.
- [Sarah] So how much conviction does this give you that we're not in a value trap or being that when you have value stocks that just get cheaper and cheaper and cheaper?
- [Andrew] We took a lot of conviction from this, and from other metrics, that are listed in the report as well. You know these people inside the company, the senior management, they will be the people with the best view. If those companies were struggling, even if it hasn't come through in the performance, you'd expect them to have the best view. So, the fact that actually the relative levels of buying of the value companies versus the growth ones, the management, the levels were at all-time highs. Relative appetite for the value gave us a huge amount of conviction that this is just a big mispricing at the moment.
- [Male Anchor] But when you talk to value investors particularly some of the ones that have been kind of flummoxed by the past few years where value kind of fell out of favor, I mean they always make very compelling cases as to why value, why it works or why it should work but the timing always seems to be off. And I'm wondering when you're using these models and you're looking at this data, is there a timing element that sort of gets factored into it or that you can apply to it that would maybe make it a little bit easier for folks to figure out how to-- go ahead.
- [Andrew] Sure, well one of the points we make in the paper is that actually it's very difficult to time anything frankly in the market, but particularly to time value. If you miss the first 12 months of the rally for example that's all the benefits, in the long run value outperforms. But if you miss that turn then you've missed all of the benefit and so actually the message is you can't really time it, but what I think you can do is lean into it. So, what we try and do in our portfolios for example is as value gets cheaper, we tilt more and more to value, and as it gets expensive out of growth we come away from it. And so, in that way you're actually leaning into the cycle rather than fighting it.
- [Sarah] So I'm lucky enough to get a handheld mic here. But I wanna ask, if you have those saying Okay you should not be timing this, this is a long-term structural change that we may be seeing, what do you say to those who argue then that we are just seeing head fakes that value is dead, because some people out there do make that claim.
- [Andrew] Well the most dangerous argument in investment management is "this time it's different". You have lost a fortune over the years following that siren call. Because I would say, yeah maybe but then almost always it isn't different and believing it is costs you a lot of money in the long run. So, we feel very confident, as I say, that you know you've got this huge under the radar disparate performance from value versus growth but there is no trap there, actually the fundamentals are very sound.
- [Female Anchor] Andrew, there's been much debate about you know, what is momentum now, what is growth, what is value. Does what a value company is resolutely stay the same, how do your models change with it, update, or do they remain--
- [Andrew] Well no, we're always looking and adding new factors. So, we talk about value as though it's a single thing but actually, we have five separate signals typically in our models of different elements of value, and so we sort of composite that when we talk about value as a factor. So, we're always looking for different ways of expressing but value by and large has been pretty consistent at its heart over the last 20 or 30 years.
- How would you respond to the folks who also say that growth has been pretty consistent and that there is no reason to sort of get off the growth of momentum stocks at this moment?
- [Andrew] Well as we talk about in the paper, if you look at the relative pricing performance, the relative sort of cheapness of value, we're more than 90% in its history sort of past the 90th percentile. Every time we've seen that in the past, we've only seen it twice, once in the tech bubble and once at the trough of the financial crisis, and each time it was followed by an enormous rally for value that more than eclipsed the losses. And so, I would say history is not on your side.
- [Female Anchor] We've had it a little bit already we have had some buying of the rest of 2000, the small caps, we're just having Liz Ann Sonders on from Charles Schwab who was saying if you look underneath the she thought it was quants mainly that drove this desire to get into the rotation of late because she says actually if you look at the fundamentals, she doesn't really care if the valuation is really compelling for a small cap, a lot of them are zombies, for example do you think some of the buying, why do you think the buying petered out thus far that we have seen of into the value?
- [Andrew] Well, I don't think you can ever tell when a bubble, what the catalyst is going to be for when a bubble is going to pop and when it's going to change in the long run. You know, when we look back through the prism of history it's often easier to write the narrative but at the time it can be some incredibly small thing and nobody really notices, so I don't take too much significance from the fact that we had two strong days and then some flatter days. But what it did show you is how sharp those moves can be when they start to move. (upbeat outro music)
- [Male Anchor] Andrew we're gonna have to leave it there. Always great to have you. QMA chairman and CEO Andrew Dyson. Also thanks to Sarah Ponczec. This is Bloomberg.