Is There Value in Valuation?

Abstract

It seems self-evident to many investors that valuation is the key to picking winners in a sector-rotation strategy. The authors’ analysis of quality tiers within the high-yield bond market casts doubt on that premise. The market’s direction exerts such a big influence on relative returns that limited room remains for valuation to have an impact. In light of the authors’ findings in the speculative-grade debt market, value-oriented investors in other asset categories may also need to rethink their assumptions.