It’s Time for a Venial Value-Timing Sin

Topics - Value Factor/Style Investing Factor Timing

${ numberSection } ${ text }
It’s Time for a Venial Value-Timing Sin

This is only a teaser. The actual piece is somewhat lengthy, but we think an accessible and worthwhile read.

For a long while, even as value suffered, we cautioned against upping the value weight. Our reasoning was twofold: 1) timing is hard (so hard that we’ve called market timing an investing “sin,” recommending to only sin a little, and only at reasonably extreme events), and 2) because despite the losses, value simply didn’t look exceptionally cheap (so not a reasonably extreme event!).

However, the last almost two years have been different. Value has continued to suffer, but lately for less fundamental and more just price reasons. We think the first eight-plus years of value’s recent 10-year losing streak were “rational” (for want of a better word). The expensive companies ex post more than justified their ex ante starting prices. In contrast, the last almost two years have seen value lose for “irrational” reasons. Value fundamentals have not come in worse over this recent painful period, it’s prices alone that have gone the wrong way. When losses are due to price moves, not fundamentals, and occur over shorter periods, that is when things actually cheapen.

To evaluate this, we look at how to measure whether a factor, in this case the value factor, is itself rich or cheap versus history. We look at three approaches, and the answer, regardless of the approach taken in measuring cheapness, is that value is currently quite cheap compared to history. And it has gotten that way over the last almost two years. In other words, value does not look like a factor with too many people chasing it today (as we are often asked), rather it looks like a shunned out-of-favor factor. At best that creates opportunity, at worst it means the last almost two, or even the last 10, years don’t show a permanently broken value factor.

We end up with a view that, unlike a few years ago, it is indeed time to “sin a little” and up the value weight somewhat.

Ok, now check out the full story!


The views and opinions expressed herein are those of the author and do not necessarily reflect the views of AQR Capital Management, LLC, its affiliates or its employees.

Past performance is no guarantee of future results.

There can be no assurance that an investment strategy will be successful. Historic market trends are not reliable indicators of actual future market behavior or future performance of any particular investment which may differ materially and should not be relied upon as such. This material should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or to adopt any investment strategy.

AQR Capital Management, LLC, (“AQR”) provide links to third-party websites only as a convenience, and the inclusion of such links does not imply any endorsement, approval, investigation, verification or monitoring by us of any content or information contained within or accessible from the linked sites. If you choose to visit the linked sites, you do so at your own risk, and you will be subject to such sites' terms of use and privacy policies, over which has no control. In no event will AQR be responsible for any information or content within the linked sites or your use of the linked sites. Information contained on third party websites that AQR Capital Management, LLC, (“AQR”) may link to are not reviewed in their entirety for accuracy and AQR assumes no liability for the information contained on these websites.

This document is not research and should not be treated as research. This document does not represent valuation judgments with respect to any financial instrument, issuer, security or sector that may be described or referenced herein and does not represent a formal or official view of AQR. This document has been prepared solely for informational purposes. The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be relied on in making an investment or other decision.