The omnishambles in value investing has naturally stirred a lively debate in financial circles. The investment strategy is now on its worst run since the death of Thomas Jefferson. Yet the length and depth of its woes obscure the fact that it is far from the only casualty of the Covid-19 market environment.
Value is just one of several major investment “factors” that economists had discovered tend to lead to above-average returns in the long run. They essentially involve grouping stocks according to some defining characteristic, such as their size, the health of their balance sheet or — in the case of value — their cheapness. Systematically mining factors is at the heart of the computer-powered, algorithm-driven quantitative investment industry that has grown dramatically over the past two decades.
The severity of the value drawdown is admittedly extreme. However, what is interesting is just how many of the strategies based on these factors are struggling at the moment. For some quantitative analysts, it is enough to make them question their entire premise.