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Commentary in Pensions & Investments: Stephen Goddard on how the risk of Value Investing has changed over the past decade.

Check out the Pensions & Investments article Perception of value equity’s low risk may not be accurate by Founder, Chairman, and CIO, Stephen Goddard. It explores how the risk of Value investing has changed over the past decade. Historically, Value has had a lower risk profile versus the broad market. In the last decade, however, Value has exhibited higher volatility than the broad market. We explore some of the causes of this change and what may be driving it as well as the prospect for Value going forward.

“Among the many attention-grabbing statistics from 2021 was the 56% return for Russell 1000 Value index for the 12 months ended March 31, 2021, which marked the third best in the index’s history of 40-plus years. This has fueled interest and excitement over a possible change in secular market leadership. While much has been written about value equity’s underperformance to growth over the past decade and whether it is due for a sustained recovery, one important aspect of the discussion that has not garnered as much attention is that value appears to have become riskier vs. its long-term history.

As with most labels, the term “value” is not a monolith, and it is much more nuanced than news headlines would have us believe. For the purposes of examples to follow, we define value as those stocks represented in the Russell 1000 Value index, knowing that this definition may vary greatly depending on the many ways of measuring “value.” Similarly, there are different definitions of risk, which include permanent loss of capital. For the purposes of these observations, we define risk as the volatility of returns.

As part of our risk assessment for value, we evaluated long-term trends in the standard deviation for the Russell 1000 Value index and its beta vs. the S&P 500 index. As we highlight in the table below, for the full 42-year period from 1979-2021, the Russell 1000 Value has had a lower standard deviation (less volatility) and a lower beta (less market risk) than the S&P 500. This dynamic held for approximately 30 years prior to the global financial crisis and was particularly pronounced in times of rising market volatility.”

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