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Value Investing Isn’t Broken (Part 2)

It’s necessary to be patient and selective about how you invest in value stocks.

Alex Bryan 16.07.2020

In part 1 of the article, we looked at the case for value investing and the requirements for value investing to work. In this part, we continue by discussing the risk of value investing and looking at why value has underperformed.

Risk

The risk of value investing is real, as the past 13 years have shown. Look no further than the coronavirus-driven sell-off. From Feb. 19 through March 24, 2020, the Russell 3000 Value Index lost 32.2%, 7 percentage points more than its growth counterpart. Value stocks tend to have weaker fundamentals than growth stocks. They are less likely to enjoy durable competi­tive advantages and tend to be less profitable with less favorable outlooks. They also tend to have more fixed assets, which can make them less flexible and potentially more susceptible to recessions.

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About Author

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

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