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Perspective
Value Spreads Are Back to Tech Bubble Highs: Is Everyone Out There Cray-Cray?
August 5, 2022
This adds another three months of data to the May entry in our series of value spread updates. Over the past two months, some portion of the market went temporarily (I hope) insane, punishing value, as we measure it, to the point where the value spread has retraced most of its modest gains since the beginning of the year. The world doesn’t steadily move a little bit towards what we think is rational each day – painfully for us, it’s not a linear process. But this changes nothing about our belief in the outlook for value.
Perspective
We Are Not Just Value! Except, You Know, When We Are...
July 12, 2022
Our systematic stock selection process is far from just “value.” And yet from 2018-2020 for the bad and 2021-2022 for the good, our world has indeed been all about value. What gives? This post reviews our correlation to value, delving into a few periods when it became the dominant part of our process. We find that when value dominates, it has usually been in bubble periods of irrational losses for value (and in their more pleasant aftermaths).
Perspective
Value Investing Is Not All About Tech
May 27, 2022
It often seems like the world sees value investing as either implicitly or explicitly all about the technology sector vs. everything else. In reality, there are many different kinds of strategies and bets that are often labeled “value.” Our value bet is long and short extremely diversified portfolios of global stocks with a serious attempt not to bet on industries (like tech) – and we are very happy about that, both long-term strategically and tactically today.
Perspective
Still Crazy After All This YTD
May 9, 2022
Over these additional three months, value’s returns, as we measure them, have continued apace. Since February, the value spread has fallen slightly, though it remains near its tech bubble peak, at around a 95th percentile. Reminder — a massive valuation dislocation says very little about the timing of when it falls back to earth. But it’s nice to see it start and still leave the spread incredibly high.
Perspective
Everything and More
April 4, 2022
My colleague and former classmate Antti Ilmanen is at it again with his second book, Investing Amid Low Expected Returns. Very rarely does a sequel stand up to the original (see Jaws II), but that's certainly not the case here!
Perspective
Shorting Counts
February 23, 2022
Man Group recently wrote an op-ed titled “Short-selling does not count as a carbon offset.” Of course we agree it doesn’t. But the headline is quite misleading if taken to mean shorting has no role in the fight to reduce carbon emissions. Shorting does exactly what it’s supposed to do – raise the cost of capital to the emitters, even more so than divestment.
Perspective
That’s It, That’s the Update
February 4, 2022
Over these past two months, value’s returns, as we measure them, have been incredibly strong. This has killed the value spread. That is, it’s about as high as it was in the tech bubble. Just not as high as a few months ago. Yes, “killed” was sarcasm.
Perspective
That’s It, That’s the Blog
December 16, 2021
They say a picture is worth 1000 words. I’m embracing the concept in this post, which is just a single graph presenting the value spread constructed using the methodology that most closely reflects how we actually view value at AQR. Spoiler alert: the spread continued to explode higher in 2021. Despite this, we still made some money on value this year, which makes us very excited for 2022 and beyond. Also, if we’re wrong, I think I can make an NFT of this graph and really cash in.
Perspective
Shorting Your Way to a Greener Tomorrow
September 7, 2021
It would be an understatement to say there is confusion in the industry about the use of shorting in an ESG context. When it comes to calculating a portfolio’s ESG score, we have heard arguments ranging from "ignore the shorts” to “net them against longs,” and, my favorite as it’s creatively insane, “pretend the shorts are actually longs.” This note explains why it is critical that shorts be properly accounted for, so that investors can use shorting to reduce carbon exposure, to get to net zero or to achieve other ESG goals.
Perspective
Are Value Stocks Cheap for a Fundamental Reason?
August 30, 2021
By far the most popular question we get from value skeptics is “are the fundamental prospects for value stocks unusually poor today, justifying their low valuations versus expensive stocks?” Well, we now have an answer that doesn’t require a four-hour time commitment nor a PhD.