Why value investing is not broken: Chart of the day

Value indexes have been performing poorly; however, there may be more than meets the eye. Yahoo Finance's Julie Hyman breaks down how value indexes may start to catch up to growth, according to Piper Sandler's Michael Kantrowitz.

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This post was written by Melanie Riehl

Video Transcript

There's no hiding in recent years, the poor performance from value in disease.

However, there's more than meets the eye when it comes to the big picture.

With value investing YAH FINANCES Julie Hyman joins me now with a closer look.

Julie.

Yeah, and today's start of the day, courtesy of Michael Kantrowitz over at Piper Sandler, who really had this not digging into the seeming value under performance.

This is something we've been talking about recently, right?

We talked about the Bank of America yesterday.

Thinks that value is going to start to catch up to growth.

We've seen that underperformance in recent years, but Kantrowitz says we are framing it incorrectly.

When we use value indices, he says, to measure this performance.

That's why it looks so weak.

So what he does.

Among other things, this note had a lot of charts, but among other things, he looks at the Value Index right, the Russell Value Index, which is underperformed, and this goes, um, back, um, all the way to January of 1996.

And then he looks at individual stocks that he defines as value or being looked at through the criteria of value factors, which is just another way of saying in financial jargon criteria in order to screen for certain stocks.

In this case, he's looking at low PE low price to earnings ratio stocks and shows that they have actually performed just fine.

He quibbles with the construction of the value in this.

That's the reason why that the value performance looks so weak, and he talks about how that mentioned the value indices tend to overweight things like financials and underweight things like technology.

In other words, if you look within technology, there are stocks that you would define as value, but because you're looking at it through a sector lens, you get just things a little bit of out of whack, he says.

If you look at the value factors across sectors being sector agnostic, you get a better picture of what value really is.

And that, uh, the performance does not look as weak.

So he makes this case.

As I said, there are a number of different charts.

This is just one of them.

But it was an interesting look that perhaps it's the criteria that those industries are using in their construction.

That is part of the reason that value has, we tend to think of it as doing much worse than growth.

Yeah, Julie wasn't correct me if I'm wrong, Wasn't it Michael Kantrowitz who was on our show?

Uh, pan on the table for utilities?

Am I remembering that right?

You are remembering that right?

And utilities is one of those areas that typically traditionally falls into the value bucket that is a low PE group overall, right?

So, um, that's one of the groups perhaps he'll talk about.

He's doing a call on Friday where he's going to give more details about all of this.

But definitely financials tend to fall in that bucket as well.

But he says in this note, You shouldn't think of necessarily those sectors as value sectors anymore.

You have to think of what value means in a more holistic fashion.