Value stocks in the US have not fared well for the last decade. The value premium, or the performance difference between value and growth stocks, has been about 3.5% in the US going back to 1928. More recently the value premium has been negative for 7 out of the past 10 years in the US. We are currently living through 1 of 13 10-year periods going back to 1928 where value has underperformed growth.
| Russell 3000 Growth | Russell 3000 Value | |
| 10-Yr Annualized Return USD (6/30/2018) | 11.78% | 8.60% |
| 10-Yr Annualized Standard Deviation USD (6/30/2018) | 12.14% | 11.89% |
This is sad news for a value investor, but only if that value investor only owns US stocks. The value story has been much different in Canada over the same time period.
| Canadian Growth Index (MSCI/Barra) | Canadian Value Index (MSCI/Barra) | |
| 10-Yr Annualized Return CAD (6/30/2018) | 1.05% | 6.73% |
| 10-Yr Annualized Standard Deviation CAD (6/30/2018) | 15.33% | 13.36% |
While US value may have trailed by 3.18% over the past 10 years, Canadian growth stock have outperformed by a whopping 5.68%! International value has underperformed international growth over the same period, but not by much.
| MSCI EAFE Growth Index (net div.) | MSCI EAFE Value Index (net div.) | |
| 10-Yr Annualized Return USD (6/30/2018) | 3.45% | 2.17% |
| 10-Yr Annualized Standard Deviation USD (6/30/2018) | 13.10% | 14.64% |
So value over the last 10 years hasn’t been great in the US or international markets, but it has been very strong in Canada. What if we compare a value and a growth portfolio made up of 1/3 each in Canada, US, and International stocks?
| Diversified Growth | Diversified Value | |
| 10-Yr Annualized Return CAD (6/30/2018) | 7.46% | 7.90% |
| 10-Yr Annualized Standard Deviation CAD (6/30/2018) | 11.79% | 11.42%% |
Well, would you look at that. Despite the underperformance of US value stocks, combining global value stocks has produced not only higher returns, but also a lower standard deviation than combining global growth stocks. US stocks get a lot of coverage, but they are not the only assets that affect the outcomes for investors. A relatively short period of value underperformance in the US is certainly not a reason to abandon the strategy, especially when we see that a diversified portfolio of value stocks has still outperformed a diversified portfolio of growth stocks.
