This weekly blog, Factor Spotlight, looks to bring issues to our readership that help to give them an edge – whether it is through fresh insights in the market or new ways to use our Omega Point tool to analyze and manage their portfolios.
Performance since 1997 - US Value Long/Short Portfolio
The portfolio realized a total return of only 9% since 1997, which represents less than a 0.4% annualized return.
Peformance since 1997 - Global Value Long/Short Portfolio
Total return was also dismal for the Global Portfolio, but it did outperform its US counterpart, realizing a total return of 44.9%. (1.6% annualized)
US and Global Value Spread
The performance of both the US and Global portfolios have generally moved in the same direction, with a few exceptions, throughout the period we analyzed.
A study of the historical drivers behind this seesawing spread will require a deeper dive and is beyond our scope here today. But it certainly deserves an in-depth analysis in the future. We are noting these observations as some industry analysts rely on this type of spread analysis as an indicator of forthcoming trend reversals.
The Value Portfolio - Style Characteristics
We continue with our analysis to explore style characteristics of the Value portfolio. Our focus on style for this week will be exclusive to the US Portfolio. We have set a new start date to match the most recent peak (March 2010). This eliminates previous shocks and disruptions less relevant to the existing market environment.
So what are some common attributes of “Value Stocks” that we can infer from the above analysis?
Maybe that’s what many of you already suspected, but at least you now have some hard data to settle any remaining arguments such as the one in the following hypothetical scenario involving two stock pickers - John and Mike:
The Value Portfolio - Sector Characteristics
Many investors tend to hold unwavering views that certain industry sectors are either in the value camp, or they’re not.
Between 2010 and 2020:
A surprise: The Oil, Gas & Consumable Fuels sector (Red Line) started out anti-value and raced out-of-the-gate to prove it. But since 2011, this energy sector has become increasingly entrenched into the value camp.
So how do we adjust the return drivers of value to construct a more value-friendly portfolio that doesn’t transform into and become more of a sector bet?
US & Global Market Summary
US Market: 2/7/20 - 2/13/20
Factor Update: Axioma US Equity Risk Model (AX-US4)
Please let us know if you’d like to learn more about the Value Factor, or better understand how Omega Point can help enhance your investment strategy.