O’Shaughnessy Asset Management explores the opportunity in small cap value stocks during market dislocations, arguing that combining value with quality screens can improve outcomes. The paper suggests that indiscriminate buying is risky, but disciplined selection may avoid the worst performers. Notably, 91.9% of bankruptcies occurred in the lowest quality decile, highlighting the importance of filtering.
A Historic Opportunity In Small Cap Stocks
O’Shaughnessy Asset Management
Research
6 Pages
Key Takeaways
Quality Screens Matter: 91.9% of small cap bankruptcies were in the lowest quality decile, showing how systematic exclusions can significantly reduce downside risk.
Valuation Gap Opportunity: The strategy traded 25% cheaper than the Russell 2000 Value index while delivering 7,000% higher 1-year EPS growth versus the benchmark.
Consistent Outperformance History: The approach outperformed in 92% of rolling 5-year periods and 95% of 10-year periods, with an average excess return of 3.3%.
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