Value stocks continue to outperform in most regions, according to Citi’s monthly Popular Investment Screens report, but it is becoming more and more difficult to actually find value stocks in developed markets to invest in.
“The more value-focused showed the best performance and outperformed in most regions. The Quality screens saw negative returns in the US and Japan, but returned a better performance in Europe,” write Citi analysts Georgios Oikonomou and Andrew Lapthorne. “One concern going forward is the decrease in the number of companies that pass our screens. We can now only find 17 deep value and 21 quality income stocks that pass our criteria. This represents a more than 80% decrease from the 2012 peak (200 names).”
Value stocks screen
Analysts have been concerned for some time about the record low PE dispersion, especially in US markets, and value-oriented stock screens are picking this up by throwing out more and more stocks as unattractive. With growth being driven by macro trends and sentiment, there has been a lot of interest in value stocks over the last year turning this into a somewhat crowded strategy. But value strategies continue to outperform in emerging markets as well, and if the number of deep value DM stocks continues to drop it may simply be time for value investors to look seriously at other markets.
David Einhorn's Greenlight Capital funds were up 11.9% for 2021, compared to the S&P 500's 28.7% return. Since its inception in May 1996, Greenlight has returned 1,882.6% cumulatively and 12.3% net on an annualized basis. Q4 2021 hedge fund letters, conferences and more The fund was up 18.6% for the fourth quarter, with almost all Read More
Graham & Rea screen outperforms in the UK, plateaus in the US
On the Graham & Rea screen, long-short strategies continue to outperform long only and short only screens, though the spread between was fairly steady. The Graham & Rea long-short screen had its best performance in the UK where it was up 1.7%, while growth was nearly flat in both the US and Japan.
Greenblatt screen outperforms in the UK, underperforms in the US
Like the Graham & Rea screen, the Greenblatt screen (based on Greenblatt’s Magic Formula) was up 1.7% in the UK, and actually fell 0.1% in the US. This dip in performance is another sign that now may not be a great time for US value investors to be particularly active. The screen’s performance also ticked up in European markets, and the spread between long-short, long only, and short only remained steady, with long-short continuing to outperform the other two.