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When (Small) Value Turns Into Momentum

beebee
in Fund Discussions
You’ve probably noticed that value investing has been the opposite of dead for a while now. In fact, small value stocks have more than doubled since the low last year. Yes, I’m cherry-picking. Sue me. More interesting is the fact that they’re breaking out relative to growth stocks. We see this in large stocks too, but the effect is more pronounced here.
Article:
when-value-turns-into-momentum

Managed small value funds vs the small value index?

https://money.usnews.com/funds/mutual-funds/rankings/small-value

Comments

  • beebee
    Momentum Indicates Stock Price Strength:
    investopedia.com/articles/technical

    The relation between value and momentum strategies:
    Simple value and momentum strategies often end up with opposite market positions. One strategy succeeds when the other fails. There are two plausible reasons for this. First, value investors regularly bet against market trends that appear to ‘have gone too far’ by standard valuation metrics. Second, value stocks carry particularly high market risk or ‘bad beta’ and thus fare well when market risk premia are high and the market turns for the better. This typically coincides with ‘momentum crashes’ in oversold markets. As a consequence, value and momentum signals may be complementary. In particular, value strategies are not very profitable in normal times or bull markets but have produced extraordinary profits when being set up in the mature state of a bear market. Similarly, momentum signals can be adjusted by extreme valuation metrics alongside signs of trend exhaustion.
    https://sr-sv.com/the-relation-between-value-and-momentum-strategies/
  • Observant1
    If I was a "factor" investor, I would pair value and momentum strategies.
    One zigs while the other one zags...
  • beebee
    edited February 2021
    Interesting Read:
    Yield Curve Steepening, and Small Caps
    Right now, longer term rates are rising, while the Fed is keeping the short term rates low. That means the yield curve is steepening at a rapid rate. That should mean a continuation of small cap out performance over at least the next 15 months. And if the Fed dithers in allowing short term rates to keep pace with the rise in long term rates, then the message is that small caps should continue to outperform for a longer time, due to all of that excess liquidity.
    yield_curve_steepening
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