Why Some Value Strategies Struggle When Value Stocks Surge

Not all value strategies have benefited equally during value stocks’ recent outperformance versus growth stocks. Head of Quantitative Strategies Michael Hunstad, Ph.D. examines why some strategies have underperformed recently and which value strategies may deliver better outcomes.

  • Shortfalls of Highly Active Value Investing
  • Challenges of Sector and Stock Selection
  • Smart Value Investing Provides Opportunity

Over the past year, value stocks have surged about 25% ahead of growth stocks, which have been sunk by rising interest rates, and the prospects for a slower economy. However, not all value strategies benefited equally. While we feel value will continue to be attractive, investors must exercise judgment in choosing well-designed value strategies. Let's take a closer look.

We've noticed an interesting trend regarding tracking error in value strategies. As a reminder, a large tracking error means an investment manager's portfolio diverts significantly from a broad benchmark, indicating a high degree of active investing. Intuitively, investors might think that a high tracking error, possibly indicating more pure or deep value investing, means stronger relative performance when value broadly outperforms.