Highlights Include:

  • Historically, we would expect a very sharp reversal of value performance to follow. This was the case in each of the two previous extreme periods, the Tech Bubble and the GFC, after which corrections to value more than eclipsed their prior losses.
  • We tested the drivers of recent value underperformance to see if we are in a “value trap.” In a value trap environment, we would expect a greater deterioration in fundamentals. However, in the last 18 months, we have actually seen an improvement in fundamental earnings for value stocks, but a deterioration in pricing. This combination is unprecedented.
  • It is never easy to predict what it will take to pop a bubble, but there are multiple scenarios that we envisage as potential catalysts, such as global growth or global recession, policy stability or a range of new regulations.
  • We believe that the magnitude of cheap stocks’ underperformance and the value available today is on par with conditions at the end of the Tech Bubble. If it ends the same way, we believe this will prove to be as great a buying opportunity as we had in March 2000.
Featured Video

Andrew Dyson's appearance on 'Bloomberg Markets: What'd You Miss?'

Source: Bloomberg. September 19, 2019

 
Andrew Dyson
Chairman and Chief Executive Officer
Roy D. Henriksson, PhD
Chief Investment Officer
Jyoti Singh, CFA
Vice President, Research
Gavin Smith, PhD
Managing Director and Portfolio Manager
Peter Xu, PhD
Managing Director and Co-Head of QMA’s Quantitative Equity Team

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