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Value punches back

Value managers closed the gap in alpha vs. their growth counterparts during the second quarter. The trailing annualized alpha during the first six months of 2018 was 9% for strategies investing outside the U.S. and 4.8% for U.S. strategies; these figures dropped to about 2% for both subsets in the second quarter. Over the three-year period, there is more parity among U.S. strategies with growth holding a 50-basis point advantage in alpha over value strategies. International growth holds a 3.5% advantage over value strategies.

The relative outperformance of growth in the post crisis years has been fueled in part by accommodative central bank policies that kept borrowing costs low to encourage growth and risk taking. As the banks begin to shore up balance sheets, rising rates might force investors to prefer more lower growth, dividend paying companies.