When Value Delivers

The first half of 2023 marks the 10th time since 1926 that value stocks have underperformed growth stocks by more than 20 percentage points over a two-quarter period. More often than not, value has responded like the hero in an action movie, beating growth over the following four quarters in seven of the nine previous instances and averaging a cumulative outperformance of nearly 29 percentage points.

The sample size may be small, but a positive average value premium following a large negative period is not too surprising. In fact, looking at the other side of the value performance distribution, there have been 19 two-quarter periods with the value premium exceeding positive-20%. In 11 of these, value outperformance continued over the next four quarters. The average premium across all 19 was 3.6%.

 It’s notoriously challenging to find an indicator that consistently predicts negative value premiums. Regardless of value’s recent performance, investors should expect positive value premiums going forward. That’s a strong incentive for investors to maintain a disciplined stance to asset allocation, so they can capture the outperformance when value stocks deliver.

Cumulative return difference for value minus growth in US stocks over the four quarters following two-quarter periods during which value underperformed by -20% or outperformed by +20%.

Bar chart showing cumulative return difference for value minus growth in US stocks on Y-axis (scale of -20% to 100%) over the four quarters following two-quarter periods during which value underperformed by -20% or outperformed by +20% since 1926. First nine bars are following -20% observations, with first two negative: Q3 1934 (-25%) and Q1 1999 (-15%); remaining seven bars are positive, ranging from Q4 1934 (5%) to Q1 1935 (80%) and Q1 1933 (100%). Remaining bars are following +20% observations, with first eight bars negative, starting with Q3 1933 (-23%) and ending with Q4 1954 (-1%). Final eleven bars are positive, starting with Q2 2001 (3%) and ending with Q1 1936 (30%).

Past performance is no guarantee of future results.

Index Descriptions

In USD. July 1926–June 2023. Quarterly returns for value and growth based on the Fama/French US Value Research Index and the Fama/French US Growth Research Index, respectively. Data provided by Fama/French. The Fama/French indices represent academic concepts that may be used in portfolio construction and are not available for direct investment or for use as a benchmark. Index returns are not representative of actual portfolios and do not reflect costs and fees associated with an actual investment.

Fama/French US Value Research Index: Provided by Fama/French from CRSP securities data. Includes the lower 30% in price-to-book of NYSE securities (plus NYSE American-listed equivalents since July 1962 and Nasdaq equivalents since 1973).

Fama/French US Growth Research Index: Provided by Fama/French from CRSP securities data. Includes the higher 30% in price-to-book of NYSE securities (plus NYSE American-listed equivalents since July 1962 and Nasdaq equivalents since 1973).

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