Value factor
TheoryDefinition
The tendency of cheap stocks (low price-to-book, low P/E, low P/FCF) to outperform expensive stocks over long periods. One of the most famous and studied factors in finance, introduced by Fama and French in 1992.
Historical premium: ~3–4% per year for US large-caps since 1928. Mechanism: investors overextrapolate the growth of “glamour” stocks and underprice boring, cash-flowing businesses. Mean reversion does the rest.
Value had a famous lost decade 2010–2020 when growth (especially big tech) dominated. It roared back in 2022–2024. Long-horizon investors typically still get paid for it, but patience is required.
Historical premium: ~3–4% per year for US large-caps since 1928. Mechanism: investors overextrapolate the growth of “glamour” stocks and underprice boring, cash-flowing businesses. Mean reversion does the rest.
Value had a famous lost decade 2010–2020 when growth (especially big tech) dominated. It roared back in 2022–2024. Long-horizon investors typically still get paid for it, but patience is required.
Example
VLUE (iShares Edge MSCI Value) tilts toward cheap S&P 500 names. Over 2003–2023, value portfolios returned roughly 8.5% CAGR versus 9.3% for the S&P 500 — but with different drawdown characteristics and outperformance in the 2000s and 2020s.
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