Is the Value Premium Dead?

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7:30 I say that Fama and French found that over a 23-year period there was a 23% chance of value under-performing. I should have said that over a 3-year period there was a 23% chance of value under-performing.
A value stock has a low price relative to some fundamental metric like book value or earnings. The value premium is the excess return that value stocks are expected to earn over the market. This excess return has historically been, and is expected to continue to be, positive. In other words, value stocks have higher expected returns than the market.
Referenced in this video:
- Volatility Lessons poseidon01.ssrn.com/delivery....
- The Value Premium papers.ssrn.com/sol3/papers.c...
- Identifying Expectation Errors in Value/Glamour Strategies poseidon01.ssrn.com/delivery....
- Risk and Return of Value Stocks papers.ssrn.com/sol3/papers.c...
- The Cross-Section of Expected Stock Returns www.ivey.uwo.ca/cmsmedia/3775...
- It’s Time for a Venial Value-Timing Sin www.aqr.com/Insights/Perspect...
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Опубликовано:

21 фев 2020

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Комментарии : 333

@BenFelixCSI 4 года назад

7:30 I say that Fama and French found that over a 23-year period there was a 23% chance of value under-performing. I should have said that over a *3-year period* there was a 23% chance of value under-performing.

@vandogtrailer6701 4 года назад

Thanks for that. I rewound twice before figuring you meant 3 years. As always, excellent analysis!!

@anaestereo810 4 года назад

Jeez. That makes a difference!

@BenFelixCSI 4 года назад

Yes, over 23 years it would be closer to 3%.

@karlheven8328 4 года назад

@@BenFelixCSI hi can you make a video on Energy stocks and big oil majors examining if they are a value trap or not?

@syncmeandroid 4 года назад

@@karlheven8328 yeah I agree, it would be great. It's amazing how they seem not to follow oil price and some of them are doing great while other really bad. *WTI +40% since 2016, while SPDR S&P Oil & Gas Exploration & Production ETF (XOP:US) down 40%* Exxon down 20%, while Chevron and Royal Dutch Shell up more than 40%. Markets are irrational. ;)

@rjhacker 4 года назад

This channel has managed to actually make me confront my biases, clean up my investments, and feel better as a result. Ben Felix is like a finance monk levitating above a rock dispensing wisdom that brings passersby inner peace

@PapaCharlie9 4 года назад

I visualize it more as being hit over the head with the Baseball Bat of Facts, signed by Fama and French.

@mikemosz9418 4 года назад

Lol!!

@BenFelixCSI 4 года назад

I'm glad it's been helpful Richard!

@mbabcock111 4 года назад

Wax on, wax off...

@constantinekarampelas9954 4 года назад

I'd suggest George Gammon

@coffeestainedwreck 4 года назад

I'm Ben Felix, portfolio manager at PWL Capital. In this episode of the Fama and French reading group I'm going to tell you all about...

@lbeyak 4 года назад

Ya LOL. Ben is so !@#$ing hot for Fama and French it's hilarious.

@alankoslowski9473 4 года назад

@@lbeyak That's because they've consistently published scientifically credible, oft prescient research.

@coffeestainedwreck 3 года назад

@@alankoslowski9473 Agreed - their work is so influential in modern index investing, and investing in general. Every time I watch one of Ben's videos I feel like I'm sneaking into a discussion section on "foundations of general relativity" or something. I hope the professor doesn't notice!

@Ones_Complement 3 года назад

And with that, Ben has officially ascended to meme status. The true measure of a legend.

@elliottmiller3282 4 года назад

I like how he just gets progressively happier over the course of the video.

@nachannachle2706 4 года назад

Yes. He is getting punnier as well. :)

@kage-fm 4 года назад

the more low-key burns he hands out, the more his mood improves

@shun2240 2 года назад

he's a big fan of small cap value

@LiamTrump 3 года назад

My only complaint about these videos is that it's taken me this much time to discover them. This RU-vid channel has a far higher ROI for the viewer than any factor weighted index fund. Thank You Ben.

@wesleydonovan4262 3 года назад

Whenever I listen to Ben Felix on this channel, I feel like I'm in College taking a Masters Degree in Stock Market Econometrics. I'm literally writing down words and statistical findings on a pad and paper, pausing and replaying the video so that I don't miss something important. Ben, you did not forewarn us that this Masterclass would be so "brain-power" intense! LOL. Thanks for all you do, sir. Your passionate public service is well appreciated.

@DakingofAP 4 года назад

The best youtube channel back at it again - thanks for the video! Very informative

@arashrezaeian9598 4 года назад

Thanks again Ben for making these topics understandable!

@julianf9745 2 года назад

I just discovered this channel yesterday and am already in love with your videos, great quality right here! However, this particular video left me wondering. I'm referring to the last part of the video. If factors like value lead to similar returns compared to the overall market in the long run, wouldn't factor timing be a very logical conclusion? If we assume that value will not underperform the overall market over long periods of time and we observe that it has done in recent years, we should be confident in expecting it to outperform in the future until the gap is minimal. This should the apply for other factors too. Basically, if we can divide the stocks in an index into baskets where each basket has the same expected return over a long period of time and then wait a few years to see which basket performed the worst just to pick this basket and wait until it breaks even with the overall index, sell and rebalance into the basket that performed the worst during that period we should be able to outperform the underlying index. Of course my requirement of dividing the index into baskets with equal expected returns might be impossible, but that's where factors could come in handy. Is this a thing? (Why) wouldn't this work?

@amsalmeron 2 года назад

Great content! I watch these videos over and over again and I always learn more. Thank you so much for these!

@stevedelaware7489 4 года назад

Hi Ben, thank you for creating your content. I've recently studied more than a dozen of your videos and you've helped me make better choices when it comes to my investments, which hopefully means you've made a big difference over the course of my life. I've watched all your content around factor investing and read your paper around using etf's to tilt one's portfolio. I have a few questions I can't find an answer to myself: 1) Why do you not include other factors that seem to be widely accepted as sound in your analyses (profitability, investment, quality, etc.), or even dive deeper into Fama-French's 5-factor model (outside of briefly in your paper)? 2) What is a framework for deciding how much to tilt one's portfolio? In your paper, you essentially divided the choice into thirds. Why 33-33-33 vs 60-20-20 or any other combination (for Beta, Value, Size)? 3) Given the overlap between the two factors, why do you not promote or discuss a "doubling down" on or focus on Small Cap Value stocks in particular? Thank you once again for your work.

@ernestparker7261 4 года назад

Ben, please do a video on Motley Fool and their services.

@mathlover5k 4 года назад

Motley Fool "Shopify set up to CRASH BY 30%" Motley Fool 3 hours later: "Why Shopify is a great bet to ROCKET-FY!"

@andorealc6218 4 года назад

There’s more noise than signal in their content. Not to mention the good-old “it’s priced in”

@syncmeandroid 4 года назад

@@mathlover5k hahaha it says it all!

@michaelsmith4904 2 года назад

"“Our award-winning analyst team just revealed what they believe are the 10 best stocks for investors to buy right now... and Ben Felix wasn't one of them(*)." (*)Because Ben Felix isn't a stock.

@khamady 4 года назад

Perfect, I mean, just perfect explanation! well done mate!

@BenFelixCSI 4 года назад

Thank you, Khalid!

@jaypark6960 3 года назад

Hi Ben, I'm always tremendously thankful for your thoughtful research and stunning videos. On this one, I have to put out the controversial idea that value investing is dead, at least in the traditional sense. Unlike market cap (which is mostly clear-cut), it's not exactly clear which metric should be used to measure if a stock is undervalued. The most widely used are P/B and/or P/E ratios, like you said. However, these two accounting metrics are outdated and do an extremely poor job of factoring in intangible assets such as software and data... any money used to write software in-house is immediately written off as expenses(!) while any money used to buy heavy machinery are amortized and are considered assets. The majority of value creation in these days is in intangible assets; yet still tech stocks' P/B ratios look overpriced for this reason. Value investing might be alive, but unless people update their accounting methods to accurately measure "value" (if possible at all), it's gonna stay in the coffin. Not a finance professional or anything, just my 2 cents.

@gradymurphy6774 4 года назад

Ben - am a strong advocate of evidenced based practice in investing. Love the fama-French 3 and 5 factor model and am a huge fan of this channel and your podcast (fantastic content). Would you consider doing a video on the logistics of building a well diversified, passive portfolio of index funds with a tilt to small and value equities?

@RitaCruz 4 года назад

Glad to have found this channel, I've already learnt a lot. For a beginner DIY investor without formal financial education, what are the fundamental/need-to-know characteristics I should be looking at when selecting an ETF? I am aiming for simplicity in my personal finances and naturally it's impossible to quickly learn enough to understand all the information on sites like morningstar, blackrock, justeft, etc. Even when favoring diversity in terms of geography, size and value, and excluding the ones that pay dividends, there's still a big list of ETFs left. I feel like the only thing I can do is calculate the cost of investment.

@johndoodoohead9221 3 года назад

Thanks Ben, this is reassuring. I have a HEAVY small cap value tilt and this video reminds me that i need to stay the coarse and that selling those positions is a bad idea. Ill just hold tight and not think about it. I still have 25-30 years before retirement

@BenFelixCSI 3 года назад

All of the people that choose to sell are delivering the premium to those of us able to hold.

@mbabcock111 4 года назад

Very well done and informative. Thank you,

@mr.dividend.investor 4 года назад

Great video! I enjoyed watching it very much!

@Bloogly89 4 года назад

Ben, what do you think of the diversification in the Vanguard retirement date index funds? Year 2050, for example: 54% total US stock market, 35% total international stock market, 8% total US bond market, and 3% total international bond. I suppose you'd recommend adding the value factor, and small cap factor?

@DaveIngelson 4 года назад

Another great video Ben. Do you have any book recommendations for Portfolio Construction / Portfolio Management (for retail investors).

@CaseyBurnsInvesting 4 года назад

Like you said Ben, if you just watched your neighbors get rich on Tesla or Apple, note is the worst time to give up on value. Value looks relatively good in this market.

@BenFelixCSI 4 года назад

I agree. We just discussed the concept of counterfactual thinking (if only I had bought Tesla etc.) on the Rational Reminder podcast. ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-wARzWl9rQjs.html

@tiendoan1333 4 года назад

@@BenFelixCSI Tesla valuation has been based on the hope that "future information" would be correct. For examples, a lot of valuation on Tesla is based on the assumption that they WILL be the dominant players in electric cars, self-driving tech, battery production, charging stations, solar producers, and the lists goes on. Tesla is assumed to be able to win on all fronts of these expectations. However, history has taught us that competitions will raise to challenge the "first movers." Take a lot at flip phones companies. Their stocks jumped upwards to 300% in one years only to slump more than 200% when Apple unleashes the Iphone. When will the competition arrives? Who knows. Will Tesla be the dominant monopoly? Who knows. The point I'm making here is that Tesla's stock is heavily driven by glamour, hope, excitement, and unrealistic expectations. A classic formula for a momentum stock Another thing I wanna point out is the recent changes in the way people valued Tesla. A company called ARK innovation made a 4 figures bull case for Tesla using EBITDA, which to me I call "magical earnings" because it excludes interest, taxes, depreciation and amortization expenses. Tesla has HUGE expenses of those category (especially depreciation) and it is being excluded from valuation. Combined all this with the short squeeze, and we have the perfect formula for a overvalued stock or momentum stock.

@Exachad 3 года назад

Apple is an amazing company in that it's simultaneously a growth and a value stock. Funnily though, Apple is in the Vanguard S&P 500 Value ETF (VOOV) and not in the Vanguard S&P 500 Growth ETF (VOOG). Apple's multipliers are not high at all. It's not high enough to be a growth stock and it's not low enough to be a value stock. Apple really is a wonderful stock though. It's a great company and I can't believe that people are actually not investing in Apple just because it's not a pure value stock. Discriminating against a great stock solely because it's not a value stock is pure stupidity.

@Exachad 3 года назад

@@tiendoan1333 This assumption isn't baseless. Tesla is extremely dominant in making efficient factories. Tesla's costs go down with every factory and their profit margins are projected to up drastically as they use more of their manufacturing facilities. Tesla is dominant in autonomous driving technology and EV cars. They are decades ahead in battery technology, software, factories, and so much more. EBITDA isn't magical earnings and has a purpose, but sure. EBITDA is a non-GAAP measure, so let's compare its non-GAAP net income with its EBITDA. $451M net income vs $1.209B EBITDA. Definitely a big difference, but Tesla has been profitable for a year. EBITDA is useful for companies like Tesla as it is pumping all of its money into growth. ARK innovation's really high mean estimate factors in the huge price increase caused by robotaxis, but even its median case is much higher than its current price. Tesla isn't overvalued, but it's a risky stock. If a good amount of things work out for Tesla, it can make enourmous returns. If they don't, it won't make huge returns. You take the risk, you get the reward. You would not be very smart or maybe just be a gambler if you put all your money into Tesla, but you wouldn't be smart if you put none of your money into Tesla either. It's a great stock with a great chance of being worth a lot more than it is today.

@zzzzzzzzzzz6 4 года назад

And it also doesn't take very long for the premium to kick in -- even just 1-2 years can make up even very significant ground

@george6977 2 года назад

👍Thanks for the references🙂🇬🇧

@og7952 4 года назад

Buying consistently VVL... hope this will pay eventually in a 15-20 years horizon

@syncmeandroid 4 года назад

Stunning video. Thanks!

@MikhailNovitskiy 4 года назад

Thanks Ben for another great video! Is it fair to assume that the evidence for market premium being risk-based is more compelling than for value premium being risk based? If so, should we demand less statistical evidence for market premium compared to other factors that in some (alternative?) universe could be purely behavior-based and hence arbitraged away?

@BenFelixCSI 4 года назад

Good question. I think it's reasonable to say that the market risk premium is not contested in its theoretical explanation like the value premium is. Statistically, the persistence of the value premium in the data has been nearly as strong as the market premium. It has been one of the most persistent non-market risk factors historically This is one of the reasons the recent period is so interesting (and painful).

@RRR20238 4 года назад

7:30 you said 23 year period, but the text says 3 year, which one is correct?

@JLL12345 4 года назад

RRR 3 year; he misspoke.

@BenFelixCSI 4 года назад

Weird slip. It is 23% for a 3-year period. Added a correction to the description.

@JSyntax 4 года назад

Thank you for this information! Any chance you'll do a video on tax loss harvesting for retail investors?

@Ones_Complement 3 года назад

Hi Ben, fellow Canadian investor here. Great video, great channel, love your content. I've been looking at the more recent XVLU for exposure to the US value premium and wondering if you'd recommend it for a more novice investor who doesn't want to mess around with Norbert's gambit. Thanks!

@jamesnicholls7139 4 года назад

What should someone look for in a value factor ETF? Are you a fan of vanguards value fund? Great video as always

@GiantAnteatersRkool 4 года назад

He has mentioned in tbe past that he prefers ijs and iusv over vbr and vtv, because the value to growth ratio is higher. Although you'll have slightly higher expense ratio

@Raphael4722 3 года назад

@jt t Those are ETF tickers

@joaosallaberry 4 года назад

Hi Ben, interesting explanation of why value stocks are riskier. But if we look at the largest value stocks, it seems that they are cheap not because of uncertainty or leverage, but because they don't have room to keep growing and they look pretty solid. Intuitively, don't they look less risky than the market?

@jugzster 3 года назад

Thanks for the insightful and well-researched video. With the spreads between growth and value higher than it's ever been, could it be because information spreads so much faster and more easily now, that the value premium has been arbitraged away? What do you think it would take for us to proclaim that value premium is dead, 1 or 2 more decades of underperformance? Thanks Ben!

@johnbailey3351 4 года назад

Good and timely topic. There are two important forces in markets, economies and life which are momentum and reversion to the mean. And yes they are opposing! Momentum has been winning over reversion for some time now resulting in the recent outperformance of growth stocks. This has happened before and compared to the late 1990’s what is going on now is mild. In the late 1990’s the broad market, at least measured by the S&P, was soaring and value stocks were losing value. In fact in 1998 and 1999 small cap value lost 6.5% and 1.5% respectively while the S&P gained 29% and 21% respectively and this was after small cap value underperformance in the mid-1990’s. Then reversion kicked in and in 2000 and 2001 small cap value returned a positive 28% and 21% while the S&P lost 9% and 12%. For the next 9 years, small cap value would beat the S&P in 7 years and would only underperformed by 20 basis points in 2005 and in 2009 by 6 percent. After all that outperformance there just wasn’t that much value left in value and things reverted. As far as value stocks being more risky, I am not sure I buy that. In the last 20 years the two worst years for stocks (the S&P) were 2002 when the S&P lost 22% and 2008 when it lost 37%. In those years small cap value while down outperformed losing only 11% in 2002 and 29% in 2008.

@tayloroxelgren264 4 года назад

@ben felix What etfs can we use as Canadians to take part in globally diversified value premium?

@luisoncpp 2 года назад

Thanks for this video!, I have been thinking in tilting my portfolio towards value and small cap and this seems encouraging. However I'm still wondering about how much to tilt it (my motivation is not to achieve higher returns per se, is for diversification).

@Loopy_McLooperson 4 года назад

Ben, love these videos. Can you do a video or discuss on rational reminder, your thoughts on Fed monetary, QE, and interest rate policies and how (or whether) they should affect one's investment strategies? In particular, interested in your thoughts on how a zero or negative interest rate environment might impact equity short and long term. Also interested in whether you believe QE has created a possible bubble in asset prices that will crash once fed paints themselves into a corner. On this last point, I'm guessing you'd say "no" because investors have already accounted for this in their expectations and therefore price reflects that. Thanks again

@BenFelixCSI 4 года назад

Yes this would make a great video and RR discussion. I'll add it to the list.

@daveschmarder-1950 4 года назад

The last time I noted value did so much better was in 2000. Of course you know what happened then. I've always been a fan of value, but it's been difficult. When I have some cash to go to the market, I look at my Morningstar grid and if value is low (which it tends to be), there is where the new investment goes. There is less excitement in value. EP85 of the Rational Reminder was interesting and amusing. I'm all caught up and now listen week to week. Thanks Ben & Cameron.

@BenFelixCSI 4 года назад

Thanks Dave. It's great to know you're enjoying the podcast!

@whatsalltheway 4 года назад

Ben, do you think left tail risk hedging in a portfolio has an advantage over traditional stock/bond portfolio? Could you make a video on tail risk hedging?

@harikrishnanchandramohan4209 6 месяцев назад

@Ben Felix. Do you recommend to wait to buy a global index at reasonable valuation or now is the right time regardless of the valuation?

@grdanon 3 года назад

@Ben Felix Hi, Ben! At 10:35 you provide information for the value premium from 1991 until 2019 by country. Do you know where I can find the same info for China, Denmark, Switzerland, Italy, Belgium and Greece (same period)? Thanks!!

@MrLevent79 3 года назад

Ben. Great content. I really enjoy your channel. Doing my CFA study with Mark Meldrum at L2 currently. I know there is no hard and fast rule for everyone but based on what you explained, it does make sense to overweight Value over growth but how much? 60% value 40% growth across different asset classes?. I find it very hard to assess and really get a handle on the optimum amount to diversify between both. I am not sure if you have a video covering this but curious to hear your thoughts if you have time. Again, great content. Now I gotta watch all your videos in between Mark Meldrum videos :) Keep up the good work!

@BenFelixCSI 3 года назад

Thanks! Your question has no easy answer. You can check out some of the discussions here: community.rationalreminder.ca And this paper (due for an update): www.pwlcapital.com/wp-content/uploads/2019/03/PWL-WP-Felix-Factor-Investing-with-ETFs_08-2019-Final.pdf

@MrLevent79 3 года назад

@@BenFelixCSI Thanks for the quick reply Ben! Will do!

@TristanB499 4 года назад

What canadian index fund would be a good way to tilt a portfolio toward Small Cap Value stocks?

@Steven-wq8tx 3 года назад

Hey Ben so I’m invested in 100% VGRO but I want to increase my weight of small cap value premium in my portfolio. I looked at your recommendation of AVDV and AVUV for US and international small cap value but I have a question. Since I do not want to own any US listed ETFs, can I theoretically buy some of the individual Canadian companies in AVDV to gain that small cap value premium? Or does this count as stock picking and totally void the market premium?

@patrickmcginley8892 4 года назад

Of topic question Ben please answer Rafi ... I know there's an ideological disconnect but do these etfs give the desired value factor exposure ? Sorry if you have answered this All ready I can't read every comment thread please answer cheers from Adelaide

@negoforex8534 4 года назад

I f**ng love your videos!

@mikjnn-1070 4 года назад

Hi Ben been watching your vids for a while now, I have learnt a lot, thanks. However im struggling to choose a fund, im from the uk. I cant decide between FTSE Developed World ex-U.K. Equity Index Fund with FTSE U.K. All Share Index Unit Trust and Emerging Markets Stock Index Fund. Or am I just better off using vanguard all equity life strategy or maybe HSBC global adventurous strategy both all equity funds.

@trnclm3 4 года назад

What are some specific ETFs to buy to get international/Canadian value tilt?

@binhvong5297 4 месяца назад

Hi Ben, thanks for your many videos. But I am confused that value stock is considered riskier (than growth), isn't value company is supposed to have better balance sheet and therefore supposed to do better in bad times?

@MRZEROTOINFINITY 4 года назад

I do feel that the market has definitely flipped the script these past couple of years. I like your stat on the '3-year period there was a 23% chance of value under-performing.' I prefer growth stocks but a couple value plays and dividend plays are fine by me! Whatever grows my portfolios up and up! Thanks for the insight Ben!

@adriancristea7924 4 года назад

Hi Ben! I am a DIY Romanian investor. Thank you for your excellent work. I found many answers in your video. In relation to value investing / value premium, I have the following questions: 1. Considering the conclusions regarding the value premium, why not everyone invest in value stocks / value ETFs? 2. I thought that if, for example, I buy MSCI World + MSCI World Value ETFs (equal value for each ETF), I get very close with an equally weighted stocks portfolio, because I buy on the one hand, mostly overvalued stocks and, on the other hand, undervalue stocks. Is my conclusion right? 3. In case of a Value ETF: once a certain stock is no longer undervalued, such stock will be sold because it does not meet the selection criteria anymore. Therefore, there is a high turnover ration. Considering this, in case of a Value ETF we will not be able to fully profit on the raise of the stock price, because it is sold immediately when is not undervalued anymore. I am right? Many thanks and keep up the good work! Andy

@miller13411 4 года назад

Andy Cristea great questions and interested in the answer!

@BenFelixCSI 4 года назад

1. Because they are risky and many people either cannot handle the tracking error (behavioral issues) or are in a position where the people they are investing for cannot handle the tracking error (agency issues). 2. MSCI World is large and mid cap stocks at market cap weights. Generally this will mean mostly large cap growth stocks by weight and much less value. That is a reflection of the market. If you add more value, you will increase the weight of value relative to growth in the portfolio. That results in a value tilt. The market naturally has a bias toward large cap growth. 3. This is not correct. Indexes usually reconstitute once or twice per year. When a value stock migrates it will not be sold until reconstitution. The value premium is earned when a lower riced stock becomes a higher priced stock. Good questions!

@adriancristea7924 4 года назад

@@BenFelixCSI Many thanks for your answers!

@tiespet5555 4 года назад

Hi Ben, Wonderfull video! Are there any ways a DIY index investor can recognise decent factor ETFs? I find it hard (as a non-us investor) to find decent factor exposure. There are options like Vanguard global value ETF. I would love to be able to identify if an ETF gets decent factor exposure and if other factors are not diluted by implementing a factor ETF. Also, How does the quality factor correspond with profitability? Both terms seem to be used interchangeably. Kind regards,

@pipebliss 4 года назад

The value premium will never be dead because there is a real risk in "value stocks". The key is learning how to determine which are valuable and which are value traps. That's not so easy and why smart guys like Fama and French are academics.

@aleksandarboricic1489 4 года назад

Hey Ben, a great video! I'd agree with Cliff that it is time to sin a little. The new Alphaarchitect blog post by Larry Swedroe gives more arguments as well. Quick Q - any thoughts on small-cap/value (MSCI) ETFs ZPRV (US) and ZPRX (EU)? They seem to be a decent option, with an okay expense ratio and a decent tilt. Not that huge funds nor volume, but well, can't have it all for a DIY. And even if you find a good one, finding an online trader that trades them (cheaply) can be even harder (from EU). Thanks!

@samueltb2182 4 года назад

I've tested their indexes in the 5-factors framework. They both have a market beta of 1.12, a statistically significant exposure to size (0.7 and 0.8) and value factors (0.4). What I don't explain is that ZPRV has a significant exposure to the profitability factor too, ZPRX hasn't. So it seems to me these are good products, tiny asset under management is the weak point.

@aleksandarboricic1489 4 года назад

@@samueltb2182 Thanks! Just curious - where/how did you run the factor regression? About the profitability, I'd argue that since they are not targeting it specifically, it is a matter of chance/luck that they have it in one fund and not in the other one. They do seem like good indexes overall!

@samueltb2182 4 года назад

@@aleksandarboricic1489 Just follow the steps described in appendix www.morningstar.com/content/dam/marketing/shared/research/methodology/869053-FrameworkAnalyzingMultifactorFunds.pdf . MSCI let you download the data www.msci.com/end-of-day-data-search so it's just a matter of sanitize the spreadsheet and run the regression function. You can use LibreOffice if you don't want to pay for Excel.

@fabriziopalmieri8104 4 года назад

Great video! Ben What do you think of msci world enhanced value? It is the only way an european can invest in value stocks in all the world.

@edcrosby8269 3 года назад

Use the spdr msci world value etf. It tracks another msci global value index

@gorthorki 4 года назад

What about the Msci prime value category? You get both value and quality exposure.

@jamescunningham6017 4 года назад

Hi Ben, what your opinion to the sell off this week?

@mbabcock111 4 года назад

How about an analysis of Joel Greenblatt's Magic Formula investing strategy? It would be an interesting example of going long on value yes?

@adriancristea7924 4 года назад

Hi Ben, I think that one of the reasons of the outperforming of growth stocks in the last decade is related to the increased popularity of the Index ETFs that are market cap weighted . In fact, such an ETF will always allocate more funds to the companies with a higher market cap (and such companies tends to be qualified as growth companies) . This may be the reason why everyone put a big chunk of their money on the growth stocks and that's why value factor underpeformed in the last decade. If this is true, this means that value factor is dead (ar least for the time when market cap weighted index funds are popular). I also have a tilt towards value stocks, but just thinking... What do you think?

@BenFelixCSI 4 года назад

I don't think that it is index funds causing the current growth valuations. ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-Wv0pJh8mFk0.html I similarly don't think that the value premium is dead. ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-kYO7xrHhqsY.html

@fellowtraveller2795 4 года назад

Hi Ben What is the risk-adjusted return of a factor-tilted portfolio compared to a market cap index? I understand that exposure to factors means a higher expected return but at what risk cost and how does it compare to the market beta?

@tiendoan1333 4 года назад

Been doing this factor thing since 1998. Here's my portfolio: www.portfoliovisualizer.com/backtest-portfolio#analysisResults Yes, when a premium of any factor began to show you will get higher (risk-adjusted) return because you took more dimensions of systematic risks

@PapaCharlie9 4 года назад

+1, interested in this question as well. Intuitively, I'd expect stdev to increase, but if return increases proportionally, the Sharpe and Sortino ratios might stay close.

@BenFelixCSI 4 года назад

Using portfolio visualizer. Jan 1972 - Jan 2020 Portfolio 1: 33% US market, 34% US small value, 33% US value; Portfolio 2: 100% US market Portfolio 1: CAGR 11.95 Stdev 15.40 Sharpe Ratio 0.51 Sortino Ratio 0.74 Portfolio 2: CAGR 10.42 Stdev 15.33 Sharpe Ratio 0.42 Sortino Ratio 0.61 Adding in risk factors does not increase the absolute amount of portfolio risk because the risks are imperfectly correlated. There is a meaningful diversification benefit.

@fellowtraveller2795 4 года назад

@@BenFelixCSI Thanks, Ben. It's really fascinating.

@nickgenov 4 года назад

Would you recommend value tilting with MSCI World Value ETFs (for example iShares Edge MSCI World Value Factor UCITS ETF )? What do you think would be a reasonable percentage of value equities from the equity portion of one's portfolio? And thank you for the wonderful videos!

@BenFelixCSI 4 года назад

I think it's sensible to have a value tilt. As for that specific fund, I have not looked at it. The amount of a value tilt depends on your preferences. More value means higher expected returns and more tracking error. You have to decide on your comfort with the trade-off and adjust accordingly.

@normantepeltu 4 года назад

Disfruto esto video y todos videos aqui

@TTArt 4 года назад

I personally hold value tilt more for diversification purposes than the risk premium itself. Then again you make a compelling argument that value (especially in the US) might be on the brink of a proper comeback. Growth is reaching ridiculous prices, which doesn't seem sustainable to me on the long term.

@BenFelixCSI 4 года назад

Growth price growth has been impressive. I generally try to think about markets from the risk-based perspective, but recent history makes the behavioural mispricing argument look pretty compelling.

@Riley321b 4 года назад

Ben, what developed international value index and emerging international value index would you recommend? I’m not aware of any after a lot of looking, that don’t have an expense ratio that’s too high.

@BenFelixCSI 4 года назад

I am very interested in the Avantis products, but for now they don't have enough history to see if they're doing what they say they will do. AVDV, AVEM

@Riley321b 4 года назад

@@BenFelixCSI Do AVDV & AVEM screen out unprofitable small companies (as you know those are a large drag on returns)? Thanks Ben- those are great recommendations!

@Riley321b 4 года назад

@@BenFelixCSI Ben, why is there such a massive disparity between the performance shown for AVDV & AVEM on the Avantis website and yahoo? The disparity for AVDV’s 3 month perforamnce is 1100 basis points and the disparity for AVEM is also 1100 basis points.

@theone9273 4 года назад

Ben do you think you could make a video about margin trading?

@RickyTeachey 7 месяцев назад

Hi Ben a friend of mine who is a portfolio manager and CFP with UBS says although the value premium has been a real thing, he doesn't believe in reversion to the mean for "value stocks" for actual investors today because identifying value stocks ex ante isn't possible. Fama and French found metrics that identified value in the past, but in the current era market, the same metrics can't be assumed to identify value securities. He says these metrics in the current era market are quite different from the past in important ways. One example is the price to book ratio. Companies own far more IP today, which does not appear in the book price. What do you think about this?

@yashen12345 4 года назад

Hey ben, I was wondering why the etf model portfolio doesnt have small value tilts in cad or intl equities? The 2014 couch potato portfolio used the following etfs. Are they bad? I was thinking of splitting the XEF and VCN into: Splitting up the XEF allocation into 1/3 XEF 2609 holdings, mer = 0.22% 1/3 SCZ - developed intl small cap, 2300 holdings, MER= 0.4% 1/3 EFV - developed intl value, 500 holdings, MER= 0.39% Splitting the VCN allocation into 1/3 VCN 200 holdings, 0.06% mer 1/3 XCS, cdn small cap, 204 holdings, 0.6% mer 1/3 CRQ cdn value, 89 holdings, 0.73% mer spliting XEF feels reasonable, the mer's arnt THAT much higher splitting VCN kinda scares me. What if the higher MER's doesnt justify the increased performance? Also CRQ isnt exactly a value etf. Its a fundamentals etf so its kind of a workaround for getting some value exposure.

@stephenmclaughlin278 4 года назад

Any good indices you would recommend, in terms of a globally diversified value fund?

@Richard_Stroker 4 года назад

On the TSX, probably VVL. I'm sure there are better options on the NYSE/NASDAQ.

@stephenmclaughlin278 4 года назад

Wow that’s a good one! Literally found exactly what I was looking for, Global Value fund, spot on! 👌Allocating to now😊

@chasewilsowned3621 4 года назад

@@stephenmclaughlin278 VVL is actively managed. That is something you should think about twice! VVL does not follow a passive index tracking strategy.

@nelfmo910 4 года назад

Anything else other than VVL? That isn’t actively managed?

@dommazahra4302 4 года назад

Please can you do a video on emerging markets.

@singto_9507 Год назад

5:18 would that be considered mispricing? Since the fund with a higher expected return has more volatility (risk), it would be natural for the pension officer to go with something more conservative, which keeps the price of the fund with the higher expected return at point where it will continue to provide higher expected returns, all of this due to risk.

@MattPukas 4 года назад

Every time I watch a Ben Felix video --> 🤯

@darkwhizzkido 3 года назад

I find it difficult to contend with the potential varying definitions of Value. Is the definition widely agreed and fixed; ie Low Price to Book/Earnings ratio?? Or does 'value' also potentially include any factor that have higher expected returns?

@alankoslowski9473 2 года назад

There are a couple factors. Low P:E, high profitability, and size seem the most important. Generally a value index fund incorporates all of them, but of course it varies by fund.

@ThorOskarsson 4 года назад

What’s the difference between value and value enhanced indexes?

4 года назад

The point on ex-US value should perhaps be qualified with mentioning the relative size of these markets. Of course you can find a segment of the overall market where a particular strategy did well in retrospect. The question would be how that should inform investments for the future?

@BenFelixCSI 4 года назад

That's true. Ex-US is ~50% of the market. Fama and French have examined the international evidence of the value premium in a few different papers: International Tests of a Five-Factor Asset Pricing Model papers.ssrn.com/sol3/papers.cfm?abstract_id=2622782 Value Versus Growth: The International Evidence papers.ssrn.com/sol3/papers.cfm?abstract_id=2358

4 года назад

@@BenFelixCSI Thanks for all the replies. Love your videos & podcast, keep going! P.S. Podcast is never too long.

4 года назад

@@BenFelixCSI For ETF investors, you have this great suggestion for exposure to the US value factor in www.pwlcapital.com/wp-content/uploads/2019/03/PWL-WP-Felix-Factor-Investing-with-ETFs_08-2019-Final.pdf. However, getting international value exposure through easily available funds is much harder (especially when looking for low fees).

@judahokonkwo3866 3 года назад

When I back tested small cap growth vs small cap value with portfolio visualizer, the results I got seems to suggest that growth beat value. When I also compared a growth index with a value index, growth beats value. The time period was from 1992 to 2020. But you seem to suggest that small cap growth weakens the outperformance of small cap as a whole. Any explanations? Thanks for the wonderful content by the way

@judahokonkwo3866 3 года назад

OK, I just saw your explanation

@la.zanmal. 4 года назад

0:36 what exactly is "risk-adjusted return"? The RR&L finding seems to contradict an explanation of the premium from higher, sector-specific risk, yes?

@TTArt 4 года назад

I think it is about having a value tilt on a market portfolio, instead of value alone. If value has relatively low correlation with market, but offers a premium, having a value tilt on a market portfolio should offer higher risk-adjusted returns (since the low correlation brings volatility down, but premium brings expected returns up).

@BenFelixCSI 4 года назад

Specific to 0:36 it means that viewing markets from the CAPM perspective (meaning that market risk is the only risk priced into stocks), value stocks have higher returns than they should after controlling for their market risk exposure.

@grantmaxted1160 4 года назад

Taneli I think you are referring to the diversification benefit of a value tilted portfolio, no? I mean if you have a value only portfolio, you’d still have a higher expected return, but with higher risk, so you’d still have a higher risk adjusted return.

@brianlindy3175 3 года назад

One ETF I have just bought is SPVU which considers value in a few ways. P/B, P/E, P/S and gives each stock in the s&p 500 a combined value score. Sounds like a better approach than just P/B? Has the research you are citing only defined value as P/B? Any equivalent studies that back test these 3 factors?

@BenFelixCSI 3 года назад

Multiple factors are important. P/B alone has some issues. Using multiple value measures can be beneficial but it also increases noise. I prefer combining P/B with gross profits which gives a cleaner signal and explains the difference in returns just as well as other value measures. There aren’t many ETFs that use the two measures together, so something like the fund you described is a decent solution. Some funds combine value and “quality” which gives a similar result to combining value with gross profits.

@avatar_legend 4 года назад

why is there no discussion of the effects of interest rates on the value premium?

@MoCowbell 4 года назад

Can you do a video on whether there is any science behind technical analysis of stock charts?

@MarincaGheorghe 3 года назад

That analysis is for traders, not investors.

@samueltb2182 4 года назад

In the 5-factors model, HmL is said to be redundant with RmW and CmA. Why did F&F still keep it in the model then ? Souldn't we focus on the other four ?

@willem3277 4 года назад

They only kept an "orthogonal" version of HML that has a single purpose: to show exposure to the value-factor. This exposure is of interest in the discussion whether mutual funds managers have skill or not. But in terms of explaining average returns, HML is redundant under RMW and CMA (small & insignificant alpha or intercept).

@willem3277 4 года назад

@@andawaywego I will elaborate, it's a little technical. These factors resemble variance in stock returns, with which apparently many individual stocks co-vary/correlate in a systematic manner. The orthogonal version of HML is basically the variance that's left over when you take Rm-Rf (market), SMB, RMW, and CMA into account. Formally: take the intercept and the residuals of the regression of HML on these factors. This HMLO will co-vary with portfolios formed on the "value-factor", hence the usefulness in judging fund managers that make these kind of portfolios.

@willem3277 4 года назад

@@andawaywego HMLO is useful to identify "value-strategies" in portfolios. HML by itself is, for the purpose of explaining risk or returns, entirely inferior to the combination of profitability and investment (RMW and CMA). This is because stocks co-vary in a stronger and more reliable way with RMW and CMA than with HML alone. In short: the research suggests that explaining returns by RMW and CMA is more robust than HML alone or HML + RMW + CMA.

@BenFelixCSI 4 года назад

Willem that's a perfect explanation. It's worth paying attention to the precision in the language used by Fama and French. In A Five Factor Asset Pricing Model, they write: _The average HML return is captured by the exposures of HML to other factors. Thus, in the five-factor model, HML is redundant for describing average returns, _*_at least in U.S. data for 1963-2013._* They followed up on this statement in their later paper International Tests of a Five-Factor Asset Pricing Model: _In U.S. data for 1963-2013, FF (2015a) find that the intercept in the regression of HML on the other four factors of the five-factor model is close to zero. This implies that HML is redundant for describing U.S. average returns during this period; its average return is spanned (fully explained) by the average returns on the other four factors. It is interesting to examine whether this result holds for the shorter period used here, for other markets, or other factors._ ... _In short, all five factors are important for describing NA average returns for 1990-2015. The heavy lifting in Europe and AP is left to Mkt, HML, and RMW, with perhaps a marginal assist from CMA in Asia Pacific._ ... _We caution that factor spanning inferences can be sample specific. Given the different results for HML here and in FF (2015a), we would not be surprised to find that factors that are redundant for describing average returns in one period are important in another._

@willem3277 4 года назад

@@BenFelixCSI Glad you've pointed me towards this more recent paper! Funny that HML now has a negative t=-2.44 in the spanning regressions on North America. I've actually found something similar in a research that I am doing myself (master's thesis). Thanks for your great channel, you're making investment knowledge understandable to anyone interested. Very important!

@jacob_90s 4 года назад

Hi Ben. I was wondering if I could get your feedback on Schwabs Fundamental index Funds, which use the Russell RAFI Indexes. From what I can find they seem to be somewhat similar to the DFA Factor Tilted Values funds you've talked about in the past, but it's hard finding info on these Indexes, and what little I can find goes way over my head

@PapaCharlie9 4 года назад

If the brochure (www.schwabfunds.com/public/file/P-6970550) or methodology (research.ftserussell.com/products/downloads/Russell-fundamental-indexes.pdf?32) goes over your head, just look at historical risk-adjusted performance. For example, FNDX compared to DUSQX. They're close, but the DFA fund edges out FNDX on rolling average and risk-adjusted returns. Since inception of FNDX in 2013, Sharpe/Sortino of 0.9/1.42 for FNDX vs. 1.01/1.60 for DUSQX, larger is better. Rolling 5 year average returns of 8% for FNDX vs. 9.25% for DFA. You can plug in other pairs, like FNDA vs. DFSTX, here: www.portfoliovisualizer.com/backtest-portfolio

@BenFelixCSI 4 года назад

Fundamental indexing ends up giving you tilts toward the right factors. They arrive there a different way which might mean inconsistent factor exposure or higher turnover but they're still pretty good. I'd look at Avantis instead of RAFI.

@jakel8627 3 года назад

My only question is why not invest 100% in value stocks? I guess because there can be very long periods where value won't do so well? Therefore you invest in the total market as well

@BenFelixCSI 3 года назад

Answered your own question 😀

@rapramix 2 года назад

I am an ignorant fool but it might be good to invest in both because if a bubble in growth stocks or the s&p 500 will burst, value stocks will be good. In my own country, Israel, we have two key different market indices, one is called TA 125 and the other SME 60 .

@SimpsonPetrov 4 года назад

You have to explain in your next video how the phenomen of publishing works. The way I see it is this. Imagine that there are two unpublished factors one is picking the stocks with expected returns higher than the market. Another factor is showing the stocks with negative comperative returns. Then, one factor, say Value Factor, gets published which leads to competent investors buying all the Value Stocks except the ones "poisoned" by that other unknown factor. Which leads to "good" value stocks rising in price stopping them from being value stocks. What is left? Right! Stocks that will not give a positive return because of that other unknown factor or factors.

@shaunrosenberg4568 4 года назад

What about growth investing.

@anindomaiti8695 4 года назад

There is substantial academic evidence on the persistence of the value premium over longer periods of time. But knowing that all factor premiums are cyclical, shouldn't we be diversified across all factors and not just one factor like the value factor? The key question to ask is how does your fund measure value (say how does it account for intangible assets) and is your value fund value-weighted or cap-weighted?

@murarikaushik33 4 года назад

Thanks for stiffening my spine. I'm (UK) Value biased. Although the 1991 - 2019 Value premium for the UK appears statistically insignificant. This could of course be explained by the UK FTSE indices being quite heavily Cyclical/Value oriented (Oil, Mining, Banking, Housebuilding - perhaps Canada is the same?). Have a look at the UK. Good value for a Developed economy.

@BenFelixCSI 4 года назад

Canada is very similar.

@jeffsinko14 4 года назад

we need a whole life video!

@AK-ky3ou 4 года назад

Past performance is no guarantee of future performance.

@InvestitorulInteligent 4 года назад

Which UCITS ETFs are best suited for capturing the value premium for both developed and emerging markets?

@BenFelixCSI 4 года назад

I don't have any specific recommendations for UCITS funds.

@gmo709 4 года назад

Value investing pays off. ...eventually.

@darhurian 4 года назад

So believing in (mostly) efficient markets does not preclude the existence of a priced risk for value stocks?

@lpuck4 4 года назад

I am still unsure about the future persistence of value stocks. Large value stocks like oil companies have serious questions about their long term viability and demand. While tech stocks are almost surely a staple of the future with growing demand. Tech stocks are often seen as growth stocks and they invest heavily in intangible assets like RnD, data, patents, and growing influence, instead of tangible assets. Modern accounting has not kept up to these changes. I think this is a genuine explanation for growth stock overperformance since the value factor which uses PE and BV is not fully accounting for these intangible assets which do generate future income and real value. Ben i really would love a response or any literature that deals with increased investment in intangible assets having an effect on the Value premium. I am genuinely torn on how to continue investing between the clear past outperformance of 'Value' and the questions i pose. I think this is valid reasoning why the value principle is being killed by tech, please prove me wrong.

@BenFelixCSI 4 года назад

You can measure value however you want and get a similar result. It doesn't have to be book, although the evidence suggests that book is as good as anything in terms of capturing the premium. If you don't like book then you can find an ETF that uses something else like sales, cash flow, or earnings to scale price. They will deliver slightly different but similar results, with no way of knowing which metric will give the best result.

@lpuck4 4 года назад

@@BenFelixCSI really appreciate the reply. Im curious to how value is defined. If value can be measured in many different ways doesnt that mean there is a matter skill in capturing the premium? MSCI value index, MSCI enhanced value index, etc etc provide different returns and ways of measuring value. If you cant know which metrics work how do you know it is even capturing he value premium or which index to use?

@alankoslowski9473 3 года назад

@@lpuck4 Thanks for asking my question for me. My thoughts are similar. Since technology is so important I also wonder if many "value" companies have become permanently less relevant. As I think Ben discussed, much depends on personal risk/volatility tolerance. Mine is only moderate. I'm willing to hold a modest amount in value, but won't go too crazy considering how volatile they are.

@enteetne6704 10 месяцев назад

what happened to the market factor nowadays? it does not seem like this is still regarded as a factor?

4 года назад

Is there really a difference between not reducing one's existing exposure to value and creating that exposure if one doesn't?

@BenFelixCSI 4 года назад

The end state is the same. I wanted to avoid people watching this video and then buying value ETFs if they hadn't already committed to the strategy. You are correct though.

@DanielMatan 2 года назад

can you say that the nasdaq 100 has a higher market risk factor than the sp 500, which would explain why its avarage nominal return in the long run(36 years since its inception in 1985) is around 14% while for the sp500 is sround 9.5%?

@alankoslowski9473 2 года назад

While unusual, there have been periods where new technology stocks produced exceptional returns. It appears we were in the midst of such a period over most of the last 20 years or so. It's unlikely the Nasdaq index will continue to perform so well, but we don't know.

@itsjacob7239 3 года назад

This guy is just too good

@johtib 4 года назад

I found the conclusion from that F&F paper confusing. They take the existence of the value premium as the null hypothesis and try to prove that it doesn't exist rather than the other way around? I guess I'll have to read the paper.

@BenFelixCSI 4 года назад

Many of their papers are a bit confusing on the first run through. They basically said we can't say with any confidence that the premium has gone away, but we similarly can't say with any confidence that it hasn't.

@johtib 4 года назад

@@BenFelixCSI but isn't that the same as saying we don't know if it existed in the first place?

@BenFelixCSI 4 года назад

No. It definitely (statistically) existed in the prior periods and also in the full period including the new period examined. What we cannot say is whether or not the premium changed from the prior to the current period.

@makiroll9960 3 года назад

im from the eurozone, doesnt look like we have sth from avantis here. i can only find one maybe-interesting etf which says that it follows an index called "Goldman Sachs Equity Factor Index World". do u know anything about this index, is it good/bad?

@BenFelixCSI 3 года назад

community.rationalreminder.ca/t/search-for-an-ideal-ucits-eu-factor-portfolio/3340

@makiroll9960 3 года назад

@@BenFelixCSI thx !!!

@makiroll9960 3 года назад

@@BenFelixCSI thx once more, for ur contents and the answer. i have yet another question, would be cool if u could answer shortly again. i just figured out that i have access to a few funds from `Dimensional` through my employer. - Dimensional World Equity Fund, ISIN: IE00B4MJ5D07 - Dimensional Global Targeted Value Fund, ISIN: IE00B2PC0716 Are these good in the/some sense of this video? Can i thus go with them? The alternative for me is/would have been the standard one, an ETF tracking the MSCI ACWI or two ETFs, one tracking MSCI World one Emerging Markets.

@yojmb9 4 года назад

Ben, I do believe in a secular change with the value premium. It seems obvious to me that value premium was inevitable during a 4%+ GDP growth rate, as the rising tide lifts all boats eventually. But if we are in a secular 0-2% GDP growth rate for G7 economies, this no longer holds true. The new era is closer to a zero-sum game for revenue and earnings. When I look at value stocks today (8-12 PE range for example), I mostly see companies with extremely strong headwinds facing it (and the declining/stagnant revenues that go along with it). What upside is there to invest in an asset that is literally becoming worth less and less YoY?

@tiendoan1333 4 года назад

Read this paper: osam.com/Commentary/factors-from-scratch

@BenFelixCSI 4 года назад

You're making an assumption that the market is not pricing assets properly. Prices are based on expectations for future cash flows discounted based on their riskiness. If there is reason to expect declining or stagnant cash flows, that expectation should be priced in. As long as you are buying cash flows at a deeper discount for a value stock than a growth stock you have a higher expected return.

@yojmb9 4 года назад

@@tiendoan1333 Extremely interesting read, thank you. I still believe my comment holds true. If you examine the graph of EPS over time under"Estimating the Valuation Disparity", you can see the "rising tide lifts all boats" effect in plain sight. It shows that in the historical data, the EPS growth trend of beaten down stocks would generally recover to market average levels. But I do believe in a zero-growth zero-sum game, this will no longer hold (on average). Don't get me wrong, I will be utilizing this research to find value stocks that I think can be re-rated in the future, but to me it also demonstrates the value factor is less about PE ratios and more about capturing the re-rating process generally. I definitely believe there is alpha to be found here, but it seems like these can happen to stocks across a wide range of PE levels. It also shows to me the danger of utilizing value strategy ETFs, since funds that are driven by procedural rules and backward-looking metrics cannot distinguish between permanent fundamental weakness and temporary fundamental weakness.