Value vs. Growth: The New Bubble
Authors: Andrew Dyson, Chairman and Chief Executive Officer; Roy D. Henriksson, PhD, Chief Investment Officer; Jyoti Singh, CFA, Vice President, Research; Gavin Smith, PhD, Managing Director and Portfolio Manager; Peter Xu, PhD, Managing Director and Co-Head of QMA's Quantitative Equity Team
QMA’s latest paper, “Value vs. Growth: The New Bubble” examines the poor performance of value from multiple angles. We establish a baseline for normal value behavior, and demonstrate through return decomposition, among other measures, why we believe that value is poised to pay off: We have seen an improvement in fundamental earnings, but a deterioration in pricing. We also find support from corporate insiders (company management and boards of directors) that there are meaningful opportunities in value.
With valuation spreads (the difference between valuation of cheap and expensive stocks) at extreme levels, dislocations are meaningfully above average, as are the expected returns to value. We expect the resulting bounce-back to represent some of the largest investment opportunities of the last decade—if not the last 25 years.