As Research Affiliates’ Charles Aram and Jonathan Treussard point out in a new paper, titled Greetings from the cold, over the very long term value strategies have tended to outperform other styles, but within that long term timeline, there can be significant periods of underperformance.
The difference between the two, according to Aram and Treussard, can be likened to the difference between climate and weather.
“Weather is atmospheric conditions over a short period of time, whereas climate is atmospheric “behaviour” over relatively long periods of time. Cyclicality is an inherent feature of investing (climate), with sometimes volatile swings in returns (weather) over each cycle,” the pair explain, adding: “But none of this, on the face of it, suggests a strategy is good or bad. It just means staying the course will be more or less uncomfortable.”
In the case of a value investing, the course has been particularly uncomfortable of late. As the pair point out: “On a 1-, 3-, 5-, and 10-year trailing basis, Russell 1000 Value generated solidly negative excess returns, −4.74%, −1.93%, −1.17%, and −1.25%, respectively. In a parallel, though much milder manner, FTSE RAFI US 1000 posted negative excess returns on a 1-, 3-, and 5-year trailing basis.
At a global level, the numbers tell a similar tale.
For the three years ending December 2015, the MSCI World ex US Value Index underperformed the MSCI World ex US Index by −2.42%.
