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Value and Momentum Fall Out of Favor, but for How Long?

Here's a look at some strategies that combine the two factors and how they have fared.

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Combining the value and momentum equity factors has been a longtime winning strategy. However, that approach has lost its luster in recent years. Here, we'll look at some strategies that combine the two factors and how they have fared.

First, how have these factors fared on their own? We'll start with value. No equity factor works in all market environments, but the value factor underperformed pretty much throughout the recent 10-year bull market. Deep-value mandates, or those that invest in the cheapest stocks based on metrics such as price/earnings, price/book, or price/sales ratios, have been challenged for several years. For example, LSV Value Equity (LSVEX), which has a Morningstar Analyst Rating of Silver, has fallen to the bottom decile of the large-value Morningstar Category over the trailing one- and three-year periods. Another example is Neutral-rated PGIM QMA Mid-Cap Value (SPRAX), which has fared even worse, landing in the mid-cap value category's worst-performing decile over the trailing one-, three-, and five-year periods. Both funds exemplify not only the underperformance of value versus growth but, more specifically, the underperformance of deep value (or low-price multiple stocks) versus relative value (stocks that trade closer to a market multiple).

Linda Abu Mushrefova does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.