Is (Systematic) Value Investing Dead?

Abstract

Value investing involves buying securities that appear cheap relative to some fundamental anchor. For equity investors, that anchor is typically a measure of intrinsic value linked to financial statements. Recently, much has been written about the death of value investing. Although undoubtedly many approaches to value investing have suffered recently, the authors find the suggestion that value investing is dead to be premature. Both from a theoretical and empirical perspective, expectations of fundamental information have been and continue to be an important driver of security returns. The authors also address critiques leveled at value investing and find them generally lacking in substance.

TOPICS: Analysis of individual factors/risk premia, factor-based models, fundamental equity analysis

Key Findings

• ▪ The authors address a series of possible (ex post) rationalizations of the recent underperformance of value strategies. They find little empirical evidence or theoretical foundation to support the criticisms.

• ▪ Building on prior academic research, the authors find strong evidence that fundamental information is relevant for stock prices.

• ▪ However, the authors find that there are periods in which stock prices become less connected to fundamental information; when value underperforms significantly, it is primarily attributable to a widening gap between prices and fundamentals.