What happened to the value premium?

What if I told you that:

a) investors in value funds are actually earning a “negative premium” thanks to their awful market-timing and the mean-reverting nature of the premium itself

b) investors in growth funds are even worse in terms of behavior, so their dollar-weighted performance is even more abysmal compared to the funds themselves

?????????????????????????????????

In the table above, “dollar-weighted” returns are reflective of the actual returns investors receive based on when money is added or taken out of the funds being studied. The “buy-and-hold” returns are what would have been earned had investors all stayed put.

That might make you think about some of your own behavioral investing traits a bit differently. It may also make you wonder where (or to whom) that premium is going, if investors in the aggregate continue to pay it.

Good question.

Jason Hsu and Vivek Viswanathan (Research Affiliates) write:

Research Affiliates is a value shop in the tradition of Ben Graham’s investment philosophy. As investors, we sell the popular securities that have become overpriced and we bargain-hunt for assets that have fallen out of favor. Today, however, we must acknowledge an inconvenient truth. The excess return earned by the average value mutual fund investor has been meaningfully negative.

What’s going on? How does this recent experience jibe with decades of research on the value premium? Does the negative excess return earned by value investors arise from an unrepresentative measurement period? Perhaps fees for the average value mutual fund are so high that they more than offset the value premium. The answer will not only surprise you but suggest tremendous opportunities for truly contrarian value investors.

Keep reading:

Woe Betide the Value Investor (Research Affiliates)

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. digital transformation commented on Jan 16

    … [Trackback]

    […] There you can find 66129 additional Information on that Topic: thereformedbroker.com/2015/03/28/what-happened-to-the-value-premium/ […]