Is the Small Value Premium Over?

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Felipe
Posts: 180
Joined: Sun Jan 11, 2015 10:06 pm

Is the Small Value Premium Over?

Post by Felipe » Thu Mar 02, 2017 5:45 pm

I look at Small Value and the PE is 24.7 compared to Total Stock Market of 24.1, earnings growth rate is lower, return on equity is lower, 30% is in Financials and 20% is in Industrials. Doesn't look very attractive.

Am I missing something?

Lucky C
Posts: 150
Joined: Sat Apr 16, 2016 6:09 am

Re: Is the Small Value Premium Over?

Post by Lucky C » Thu Mar 02, 2017 5:57 pm

Research Affiliates (Rob Arnott, Chris Brightman, and some other smart people) predict that small cap will underperform at current valuations. However they also predict that value strategies will overperform. But which is a bigger factor for Small Value alpha, "Small" or "Value"?

ThisDinosaur
Posts: 492
Joined: Fri Jul 17, 2015 9:31 am

Re: Is the Small Value Premium Over?

Post by ThisDinosaur » Fri Mar 03, 2017 4:53 pm

https://www.researchaffiliates.com/en_u ... r_zoo.html

Size premium was never statistically significant. Especially when looking outside the US. Value, on the other hand seems more fundamental.

IlliniDave
Posts: 1568
Joined: Wed Apr 02, 2014 7:46 pm

Re: Is the Small Value Premium Over?

Post by IlliniDave » Fri Mar 03, 2017 5:33 pm

Factor premiums have really never been consistent in that they will sometimes underperform and sometimes overperform, and that it can take a lot of time for the premium to win out. What the track record might be if you look back 10, 20, 30 years from now, who knows? My guess is that in the long haul it will persist. I wouldn't speculate on SV seeking a short-term profit though.

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FBeyer
Posts: 655
Joined: Tue Oct 27, 2015 3:25 am

Re: Is the Small Value Premium Over?

Post by FBeyer » Sat Mar 04, 2017 2:26 am

ThisDinosaur wrote:... Value, on the other hand seems more fundamental.
I see what you did there. I like it

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