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Down Goes Value

Value within the Russell 2000 just experienced its worst week ever

In a pair of previous posts (Historical Value & Historical Value (part 2) we looked at recent Value returns and the volatility of those returns from a historical perspective. The first post was inspired by a week in June where Value had large negative return within the large cap Russell 1000.

In this Monday’s Weekly Factor Return blog, we indicated Value within the Russell 2000 experienced the biggest decline in our data history, which dates to the beginning of 2000. The -9.76% return eclipsed the previous low of -8.43% from the week ended April 20, 2001. The histogram below plots each week from January 2000 to last week, indicated by the red dot on the x-axis. Value’s decline last week represents a roughly five standard deviation move.

Our factor calculation removes sector and capitalization effects to capture a pure Value component. That means the decline was not a result of other influences. Clearly, small cap investors shunned Value stocks in favor of Growth last week.

Histogram of weekly Value returns in the Russell 2000

Source: Jackson Creek Investment Advisors, S&P Global.

In the second of the previous posts, we looked at daily returns to Value in the small cap universe and highlighted how they have become more volatile, but also more positive than previous years.

This time, we will form another picture that shows forward returns following the four weeks (excluding last) that had the most negative Value returns in the Russell 2000. The table below shows Value returns for the next 1, 2, 3, 5, & 10 years following four weeks that experienced extreme negative returns. The weeks (and Value returns) are:

  • April 20, 2001 (-8.43%)

  • September 23, 2016 (-8.41%)

  • May 8, 2020 (-8.39%)

  • January 12, 2001 (-7.70%)

Table of period Value returns

Source: Jackson Creek Investment Advisors, S&P Global.

The 1-to-5-year periods beginning in September 2016 did not generate attractive returns to Value. Growth significantly outperformed during the years preceding and immediately following the pandemic. Investors without a Growth bias most likely struggled during those years. The other three periods in the analysis experienced attractive returns following those negative weeks.

Value, as with most factors, can go through periods of volatility and negative returns. Unlike various other factors, it has attractive long-term return expectations. This is why we believe there is value in having an exposure to Value over the long term. In the two periods beginning in 2001, Value returned over 20% on an annualized basis.



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