November 20, 2019 Finance and Tech Publication

Value stocks get an endorsement from a long-time hedge fund skeptic

AQR Capital founder Cliff Asness says it’s time to “sin” a little — and by that he means increase allocation toward value stocks.

For years Asness, whose quant fund takes a factor-based approach to investing, has cautioned against betting on value stocks. The assertive hedge fund billionaire also preaches against trying to market time. But on Thursday he said that while value stocks have been under pressure for ten years, the last two years have not been justified and it may be time to buy some more.

Cliff Asness

Chris Goodney | Bloomberg | Getty Images

“We think the first eight-plus years of value’s recent 10-year losing streak were ‘rational’ (for want of a better word) … In contrast, the last almost two years have seen value lose for ‘irrational’ reasons. Value fundamentals have not come in worse over this recent painful period, it’s prices alone that have gone the wrong way,” he said in a blog post.

Essentially he means that for the last two years investor sentiment has driven the downturn in value rather than a breakdown in fundamentals. Value has been “on the outs” with investors.

He said that AQR Capital, which oversees $185 billion, evaluated value stocks from a number of perspectives, with the conclusion always suggesting that “value is currently quite cheap compared to history.” He also doesn’t think it’s overbought at this point since for the large part value remains “shunned” and “out-of-favor.”

Value investing is a tried and true method of stock picking where the buyer evaluates the fundamentals of a company. If the market is pricing the security below what the investor has deemed to be the company’s intrinsic value, then the stock is a buying opportunity. Berkshire Hathaway’s Warren Buffett is one of the most well-known value investors.

But in recent years the boom in technology names has driven investors to prioritize growth stocks, which means value stocks have somewhat fallen out of favor.

One of the tenets of Asness’ investing style is that timing the market is difficult, and so investors should only ever commit this “sin” during reasonably extreme events. And he says now is such a time. Investors shouldn’t wait until value stocks hit March of 2000 levels, which Asness called a “looney tunes” time.

“If you believe, as we do, that value is a good long-term strategy, and an important part (not all) of an investment process, we would recommend a modest extra amount of value than the norm. To the skeptics we would ask ‘if not now, when?’ If the answer is ‘only when it’s as bad as the tech bubble’ we just think you’re making the wrong call,” he said.

Asness does not make any specific stock recommendations.

One popular exchange-traded fund focused on value stocks is the Vanguard Value ETF (VTV). The fund is up 18% this year, below the 23% gain for the S&P 500. However its performance is improving as of late, up 7.8% in the last one month, better than the S&P 500’s 6.6% gain. The ETFs largest holdings are Berkshire Hathaway, J.P. Morgan Chase and Johnson & Johnson.

Related Posts

‘Dark Waters’ movie poses risk for 3M, analyst says

November 20, 2019

November 20, 2019

The new movie “Dark Waters” may be about an attorney’s battle against chemical company DuPont, but the film could shine...

The best-performing hedge funds are piling into these financial shares

November 20, 2019

November 20, 2019

Traders and financial professionals work on the floor of the New York Stock Exchange (NYSE). Drew Angerer | Getty Images...

Why Icahn is making a $400 million bet against malls: Record store closures this year

November 20, 2019

November 20, 2019

Carl Icahn Adam Jeffery | CNBC Activist investor Carl Icahn is poised to win big if the American mall loses....

Goldman Sachs is planning on giving some of its most valuable software to Wall Street for free

November 20, 2019

November 20, 2019

David Solomon, Goldman Sachs Adam Galica | CNBC Goldman Sachs wants to give away some of its most valuable software....

Here are the biggest analyst calls of the day: Johnson & Johnson, Canopy Growth, Intelsat & more

November 20, 2019

November 20, 2019

Johnson & Johnson products on a shelf in a store in New York. Lucas Jackson | Reuters Here are the...

After a 60% drop in 6 months, Bank of America says buy pot stock Canopy

November 20, 2019

November 20, 2019

Canopy Growth Tom Franck | CNBC With shares down more than 60% over the last six months, it’s tough to...

One of the largest coal-fired power plants in the Western US has just closed for good

November 19, 2019

November 19, 2019

FILE – In this Sept. 4, 2011 file photo shows the main plant facility at the Navajo Generating Station, from...

Stock pickers are getting too confident and that may be a bad sign for the rally

November 19, 2019

November 19, 2019

Traders and financial professionals work on the floor of the New York Stock Exchange. Drew Angerer | Getty Images News...

‘Dean of Valuation’ says Saudis got the Aramco valuation right, but he’s still not buying

November 19, 2019

November 19, 2019

NYU Stern professor Aswath Damodaran, known as the “Dean of Valuation” for his company analyses, says that Aramco more or...

Biggest analyst calls of the day: Broadcom, AT&T, MSG Networks & more

November 19, 2019

November 19, 2019

Randall Stephenson Katie Kramer | CNBC Here are the biggest calls on Wall Street on Tuesday: Morgan Stanley upgraded Broadcom...

AT&T downgraded by MoffettNathanson to sell on concern wireless can’t carry the whole company

November 19, 2019

November 19, 2019

Randall Stephenson, chairman and chief executive officer of AT&T Inc., speaks during a Senate Judiciary Subcommittee hearing in Washington, D.C.,...

The world is getting windier and it could mean a big boost for alternative energy

November 18, 2019

November 18, 2019

The world is getting windier, which means a surge in wind-generated power could be coming. A new study led by...

Booming subscription services building revenue for companies, but sapping customers’ wallets

November 18, 2019

November 18, 2019

Wonder where your paycheck is going? You might want to look into your monthly subscriptions. Subscription services are on the...

Subscriptions build revenue for companies but sap customers’ wallets

November 18, 2019

November 18, 2019

Wonder where your paycheck is going? You might want to look into your monthly subscriptions. Subscription services are on the...

Goldman sees the economy surprising in 2020 and these stocks benefiting most from the rebound

November 18, 2019

November 18, 2019

A Kohl’s store in Mount Kisco, New York. Scott Mlyn | CNBC Goldman Sachs believes the U.S. economy is poised...