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The Value Trap

By Paul J. Carroll, CFP®October 21, 2020December 1st, 2023Videos

Last week Dimensional released a report that showed an unprecedented negative outcome for value investing over the last few years. What is going on and how can we benefit from this information? So from July, 2010 to 2017 Value outperformed its historic performance by about one and a half percent, which is nice until we discover the Growth outperformed Value in the same period by 7.6%. That’s a lot annualized over such a long period. In the last three years, Growth continued yet Value had an average annualized return of -3.3%. This has resulted in annualized spread of over -21%. That’s pretty much unprecedented. We know the Value and Growth sort of do the seesaw thing, but right now we see this Growth’s up here, Value’s down there.

Now for those of us who are diversified, who are disciplined, who’ve had a Value bias since basically the beginning of this firm and have also been hurt by REITs, we know Real Estate has been crushed by Covid – corporate real estate, that is. This has been a very frustrating period. In fact, the coup de gras was when the Federal Reserve went out and bought corporate bond ETFs, and everybody who was being careful went to Treasuries, just got hit again. Bam. Never happened before, but now the precedent’s set we can assume it will happen in the future. But in the ashes of this environment lie opportunity, especially for those who’ve been cautious this year. Crucial for long-term returns, every investor needs to get back to the long-term strategy and normal investment policy. But cautiousness while facing a potentially deflationary environment makes good sense. However, as the odds of deflation are fading into history everybody needs to get back in.

But how do you do that? We’ve had an extraordinary rally from pre-COVID rich markets, that arguably were overvalued, to intra-COVID extraordinary markets. And I say “intra” because this party’s not over yet. And Value. Value’s the trick. Value’s on sale in a way it’s never been on sale before. Even if Value does not outperform Growth in the future, as it has historically, just regression to the mean creates a great opportunity. And the pendulum will swing. Historically, it will swing after the election. So we’ve got this opportunity right after the election. For those who’ve elected to be cautious this window between now and middle of November is the time to be thinking about making major steps, certainly by the end of the year, back towards a normal asset allocation. But to do it using Value-based investments; Value ETFs. We wish you the best of success. Thank you.


Download a PDF of Dimensional’s Article:

An Exceptional Value Premium


Value Stocks Could Shine After U.S. Election – Bloomberg

An Exceptional Value Premium – Dimensional Insights

Founder & CEO at Avion Wealth

Paul is the founder and CEO of Avion Wealth, LLC. He leads a team of wealth managers in building and executing financial plans for high net worth individuals and families. Contact Avion Wealth to speak with a financial advisor.