Room to Run

Humans seem so uncomfortable with long runs of success that we coined a phrase alluding to anticipation of our fortunes reversing. For some investors, "waiting for the other shoe to drop" might describe conflicted feelings about the recent surge in the value premium.

US value stocks outperformed the broad market by 21.5% over the twelve months ending October 31 – a top decile outcome for rolling one-year return differences since June 1927.¹ The strength of this recovery may have some wondering how much longer it can last. How much more juice we can squeeze? If history is any indicator, maybe quite a bit.

If we plot the performance of value stocks relative to the market, the current run for value is actually dwarfed by some of the runs in the past. Value has outperformed the market by more than 100% cumulatively on eight separate occasions.

Expecting a value premium remains sensible regardless of past performance. And the nature of past value runs suggests the fun might not be over yet.

Based on the return difference between the Fama/French US Value Research Index and the Fama/French Total US Market Research Index.

Glossary

Value stock: A stock trading at a low price relative to measures of economic value such as book value or earnings.

Value premium: The return difference between stocks with low relative prices (value) and stocks with high relative prices (growth).

Index Descriptions

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 Amex equivalents since July 1962 and Nasdaq equivalents since 1973).

Fama/French Total US Market Research Index: July 1926–present: Fama/French Total US Market Research Factor One-Month US Treasury Bills. Source: Ken French Website.

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