When I looked at the performance of the Value Rank at the end of last year, there was some good news. Unlike in 2022, the cheapest decile of stocks had beaten the FTSE All-Share in 2023. However, in 2024, the top-ranked Value shares have just kept pace with the broader indices:
The reality is that it has been another year of struggling small caps, particularly those listed on AIM:
Because the Value Rank deciles are equal-weighed, they tend to underperform market-cap-weighted indices during periods when the largest companies outperform. In 2024, the tax changes in the recent budget have had the biggest impact on AIM stocks. The attractions of companies that are cheap on earnings, cash flow or assets simply haven't been able to overcome the outflows from this particular part of the market.
2024 has been a much better year for investors who bought the cheapest decile of large cap stocks. These outperformed the market by almost 30% YTD:
This will be little salve for those of us who feel we can get a better edge in smaller companies. However, it shows that value investing still works well under the right conditions.
Even in the smallest of companies, the Value Rank has still been useful. In stocks with a market Cap of £1m-£100m, the average stock with a Value Rank below around 40 has significantly underperformed the market:
Over the last three years, the average stock with a Value Rank below 10 has performed abysmally. So even if investors don't view themselves primarily as Value investors, if they invest in smaller companies, they would be wise to avoid the most expensive stocks.
In addition to the overall performance of the 90+ Value Rank stocks, Alex has been able to break out the performance into the highest-ranked stocks of the individual components that go into the Value Rank. Here, the timeline is a little different as the study was done in October, so the data runs the year to 1st October:
It is notable that stocks that are very cheap on Free Cash Flow performed best. My hypothesis here is that companies that generated a lot of cash were able to use…
