Education Big ERN's take on small cap value

My thoughts on Small-Cap and Value Stocks

Interesting read to those who already factor invest.

 

Interesting, value in particular sits in a pocket statistically speaking where there are two plausible outcomes.

• Its about as cheap as it gets relative to growth historically speaking and we should be worried about what that says about the current domination of tech growth, the economies exposed to that and their current valuations.
• This time it truly is different, and we are looking at a data break where the future outcomes will be meaningfully different to the past observations.

Possibly a bit of both. I'm sure there will be plenty of debate before the market exposes the true answer.

 

To see the valuation factor premium trend break in the USA data could tell us either;

• The value factor premium trend has broken
• The makeup of the American Economy has changed, and it has become more technology focused.

Global factor premium data only goes back to 1990. So limited view but we can see that value had a much better run outside of USA in the early to mid 2000’s when USA and Technology was out of favour.




I will conclude the value factor premium is completely gone if value doesn’t outperform when America underperforms.

America v rest of the world looks as stretched to the upside as value v growth looks stretched on the downside.

America continues to outperform = Value premium breaks historical trend.
America starts to underperform = Global value is a buying opportunity.

I have an allocation to global value so beware the bias in my views!!!!

 

How’s that for timing – Howard Marks has a new memo out “This Time it’s different”

https://www.oaktreecapital.com/docs/default-source/memos/this-time-its-different.pdf


One of posts topics refers to growth vs value.

Interesting to read contrasting views from the heavy hitters.