(Content courtesy Dimensional Fund Advisors. Link to actual PDF below.)
After a strong year for the value premium, investors are curious about what that means for value performance for this year.
• Value stocks are expected to perform better than growth stocks every day, because a lower relative price is associated with a higher expected return.
• Historical data suggest a positive value premium regardless of its performance in the prior year.
• To evaluate the value premium’s performance from one year to the next, we first arranged years based on the annual value premium, then looked at the next year’s performance.
• The top quartile years—those with the strongest value premium performance—were followed by an average annual value premium of 4.74%. The bottom quartile—or the weakest years for the value premium—were followed by an average annual value premium of 4.35%.
Investors haven’t missed the boat. Staying consistent in your exposure to the value premium can be the most reliable way to capture long-term returns.
Here’s the PDF which is the source of this content.