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Value Investing:

Bruised by 1000 Cuts
Rick Friedman GMO Asset Allocation Insights, May 15 2019

Executive Summary

The duration and magnitude of value’s recent underperformance has caused many to ask once again if value investing is no longer effective. While it is possible that secular shifts have helped to compress value’s premium relative to its long-term history, we believe most of the recent decline can be traced to more transitory factors. Our research indicates that value’s underperformance has stemmed from multiple factors including, among other things: a smaller relative income benefit; less tailwind from rebalancing; and an increasing discount to the market. We also believe that even if the normal value premium has compressed, value is currently priced to outperform across all regions.