Cliff Asness, “godfather of value investing” and co-founder of AQR Capital Management, is once again defending value investing and saying that current valuation spreads between the cheapest and most expensive stocks point to a “bright future.” This according to a recent article in Bloomberg.
“Current value spreads—call them at record levels,” Asness said during a webinar earlier this month, adding, “When it walks like a bubble and quacks like a bubble, we’ll eventually say it’s a bubble.”
Citing this year’s turnaround for value, the article notes that Wall Street players are debating whether it has much longer to run. But according to Asness, spreads remain wide even after value’s rebound, and analyst earnings growth forecasts for value are not unusually low compared to those for growth stocks. Asness argues, “There’s no indication hat the market is saying ‘sure, valuations may be radically different today, but it’s justified by the difference in earnings growth we expect.’ We’re excited about performance, but nothing goes in a straight line.”
The article reports that, although there is an apparent positive correlation between bond yields and value stocks, AQR’s research shows that this dissipates over the long term. Asness contends, “To actually be negative on value moving forward because of interest rates, particularly when value spreads are at such extremes, you have to believe the correlation environment of the last 10 years will persist forever and rates will fall dramatically from this low level.” He concludes, “This is just not a very big worry for me.”
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