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Value Investing Isn’t Broken

The payoff to value stocks will probably behave more like a risk premium going forward.

Alex Bryan 03.07.2020

Has the market become so efficient that the time has come to abandon value index funds? Information is more widely available now than ever, and the resources dedicated to processing and acting on it have never been greater. As a result, significant mispricing is less likely now than in the past. Yet despite these advancements and value stocks’ lengthy stretch of underperformance, it’s premature to give up on value index investing.

Is Value Investing Broken?

Value stocks have been out of favor for a long time. The Russell 3000 Value Index has lagged the Russell 3000 Growth Index by a staggering 5.9 percentage points annualized from the end of 2006 through May 2020. That’s enough to try almost any investor’s patience. It’s the longest stretch of underperformance U.S. value stocks have ever experienced.

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About Author

Alex Bryan  Alex Bryan, CFA is the Director of Passive Fund Research with Morningstar.

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