Research Affiliates examines whether investors missed the recent value rebound and what today’s extreme valuation spreads imply for future returns. The paper argues value’s long underperformance was driven almost entirely by valuation compression, not fundamentals, and suggests current discounts may be among the most attractive ever, raising the possibility of a meaningful reversal.
Did I Miss The Value Turn?
Research Affiliates
Rob Arnott
Research
11 Pages
Key Takeaways
Extreme Valuation Gap: Value stocks reached a 100th percentile discount versus growth by 2020, far below the historical average ~21% spread observed since 1963.
Pandemic Drawdown Severity: Value underperformed by 34% cumulatively from 2006 peak through 2020, including a sharp 21% drop during early COVID months.
Recovery Outperformance Pattern: In 5 of 6 post-recession periods since 1963, value outperformed growth within two years, often by a wide margin.
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