Snap AV: has value been resurrected?

Don’t call it a comeback just yet, but something very weird has happened in markets over the past two trading sessions.

It seems, dare we suggest it, that the “value” factor — Ie companies which are cheap on a fundamental basis — is getting a serious, sustained bid after a near decade of getting crushed by the “growth” and “momentum” factors.

Here’s a chart from Wolfe Research which shows just how extreme this reversal has been. It deals with the price moves from Monday’s trading session, and breaks down all listed US companies listed by industry groups before placing each of them into various baskets, measuring things including dividend yield, book-to-market and return on equity. It then charts the way in which the equities of those companies falling into each basket performed over the course of yesterday.

As you can see, book-to-market (ie companies that are cheap relative to their book value) and high dividend yield stocks crushed it. High expected growth and momentum stocks got pummelled (open in a new tab to make it large):

In fact, the moves were pretty damn bonkers:

Based on historical data, the book-to-market enjoyed a 12x standard deviation rally, while price momentum and short-term growth factors suffered from 20x and 25x sigma sell-offs, respectively, on November 9.

Although we don’t have the data for today it seems the trend has continued Tuesday, but not to the same degree.

The real question is though, with a lot of hedgies hoping this is the first innings for value, are we in March 2009 when we saw similar price action before the trade tailed off? Or, are we in March 2000 when the dotcom boom turned to dust and several hedge fund legends were born over the next half decade?

Right now, it’s an impossible question to answer. We are less than 48 hours into news breaking about a promising vaccine treatment. In the coming weeks and months, expectations that we are at the beginning of the end of this pandemic could be bolstered or dashed. But the signs that investors are beginning to think about value investing in a rather more different way are, at least, promising for the hedge fund honchos.

Related Links: Covid condemns value investing to worst run in two centuries — FT Value and growth investments gap at 25-year high — FT ‘Value drought’ claims latest victim as growth stocks power on — FT