Value stocks have tended to congregate in the energy, financials, telecoms, utilities and real estate sectors
Bargain-seeking investors who focus on value stocks have endured a difficult time since the 2007-08 global financial crisis, as their strategy of buying value stocks has failed to deliver the anticipated results.
Value stocks, historically, have tended to congregate in the energy, financials, telecoms, utilities and real estate sectors. But Andrew Lapthorne, a quantitative strategist at Société Générale, prefers to describe value stocks as an “assembly of problems” that some investors choose to avoid.
Value investors are buying whatever the problem happens to be — UK companies that were hit by Brexit, oil stocks after the collapse in crude prices, airlines during the pandemic, he says.
Even so, the majority of US fund managers who try to pick winners from value stocks have failed to beat a passive value-stock benchmark over the past decade. According to data from S&P Global, after their fees were taken into account, 86 per cent of large cap US mutual funds failed to beat the S&P 500 value index over the decade ending December 2020.
Managers of US small cap value funds did worse, with 97 per cent, net of fees, underperforming the S&P small cap 600 value index, over the same period.
Investors’ disappointment with the poor performance of active managers who try to pick winning stocks has fuelled a shift into low-cost exchange traded funds that track a broad index. Investors can now choose from 165 value ETFs, which have combined assets of $392bn, according to ETFGI, a data provider.
ETFs offer a wide variety of readily assembled value strategies that can be used as building blocks within an investor’s overall portfolio, says Deborah Fuhr, founder of ETFGI.
However, the strong growth of Big Tech companies, which has driven Wall Street’s record breaking rally has meant that value index-tracking ETFs have also struggled to keep pace with passive funds tracking the broader US market.
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