Bridgeway Capital Management examines whether the rebound in US small-cap value stocks signals a lasting shift or a short-term recovery. Despite a sharp comeback, valuations suggest the segment may still be materially undervalued, with prices needing to rise roughly 43% to reach historical norms, challenging the idea that the opportunity has already passed.
“Room To Run” With US Small-Cap Value Stocks?
Bridgeway
John Montgomery, Christine Wang
Research
7 Pages
Key Takeaways
Valuation Gap Remains Large: Small-cap value stocks would need to rise 43% relative to the S&P 500 to return to historical median valuation levels as of March 2021.
Sharp Factor Reversal: Smallest decile stocks swung from underperforming by over 15% annually to outperforming by more than 3% annually in just one year.
Long-Term Underperformance Persists: Small stocks lagged by about 1.3% annually over the past 10 years, implying a need for sustained outperformance to normalize historical premiums.
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