Historical Value (part 2)

Value has been volatile lately. It's also been positive.


The decline in equity values this year has been accompanied by an increase in market volatility. Since an initial spike in the early days of the pandemic, index level volatility has trended lower, but still remains above pre-pandemic levels. The chart below shows the CBOE Russell 2000 Volatility Index ("RVX"). It is similar to the popular “VIX” but based on the smaller company Russell 2000 Index.


Chart 1: RVX
RVX Index chart from Koyfin

Source: Koyfin.


The broad index is not the only thing that has been volatile. Factor returns have also experienced extreme moves. We highlighted a particularly extreme week for Value in a previous post and provided some historical context with a simple comparison to prior high volatility periods.


Here, we’ll look at Value using daily returns in our small cap universe. Our factors are calculated on a sector-neutral, equal-weighted, basis to mitigate sector and size bias. The chart below is the standard deviation of daily Value returns using a rolling 3-month window. Unsurprisingly, it is high during the Tech Bubble in the 2000-2002 years, pops up again during the GFC and spiked during 2020 with subsequent peaks in 2021 and currently.


Chart 2: Daily Value Returns, rolling 3M standard deviation
Rolling 3 month standard deviation of Value returns within the Russell 2000

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


Higher daily volatility does not mean negative returns. It just means fluctuations are greater. Below is a plot with the ranges of daily returns to our value factor for each year since 2000.


Box plot of annual daily Value returns; 2000 - 2022

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


The longer boxes in 2020-2022 indicate a wider range of returns during the last 2+ years. The negative outlier dot in 2022 occurred on February 24th when Value declined 3.72%. The interquartile range measures the distance between the 25th percentile and the 75th percentile. It is the length of the box, excluding the “whiskers” that extend past the top and bottom of the box. The IQR this year (1.96%) is already the highest of any year since 2000 (the previous high).


Daily returns are wide-ranging this year, but they are also more positive than in years past. The median has noticeably increased in the past two years. The median is the horizontal line across each box. As of the end of June, the median daily return for Value was 0.43%. This is more than double what it was in 2021 (a very strong year for Value) and about 80% above the previous high from 2000.


Value has had a nice run lately (for those that believe in Value as we do). As these charts show, daily and short-term factor moves can be dramatic. It is only in hindsight, with the benefit of complete information, that we can draw more meaningful conclusions. So, we will not guess how Value will perform on a daily basis over the second half of the year or any other period. What we will say, however, is that Value will be positive in the long run.

Back