Last week came news that a $10 billion investment firm in the US was shutting up shop.
For many investors - especially elsewhere in the world - that wouldn’t usually raise eyebrows. Yet, for a number of reasons it sent a shudder through sympathetic onlookers everywhere.
AJO Partners has been in business for 36 years. And for three decades its speciality of ‘value’ investing worked well (as a long history of market research tells you it should). But over the past five years - and that’s really being generous - it was a strategy that hardly worked at all.
In an interview with the research site MarketWatch, co-founder Ted Aronson, put it bluntly: “Our return sucks over the past few years… Our sh*t is so bad it’s unbelievable compared to our peers.”
In a separate note to investors, Aronson explained: “Our decision to close is in response to market forces. We still believe there is a future for value investment; sadly, the future is unlikely to arrive fast enough for us.”
Aronson isn’t alone. Value investors around the world have been suffering since the financial crisis more than a decade ago. In that time, growth investing - irrational as value investors might see it - has simply reigned supreme.
With firms like AJO throwing in the towel, there’s more than an echo of the high profile firings of value managers at the height of the dot-com boom. Back in 2000, even Warren Buffett was getting flack for not buying speculative tech stocks. But for those value managers who stayed the course, the years after the crash were blisteringly profitable. It was probably the best recent example of how the market can ruthlessly cycle between growth and value.
Market cycles
Back in the present, even swirling economic turmoil, US elections and Brexit trade deals haven’t snuffed out the enthusiasm for small-cap growth and expensively priced mid- and large-cap high quality shares. The question for investors is when will these trends change and the cycle move on?
As Ted Aronson will tell you, there’s no way of knowing. But if you dig around, there are stocks out there that either haven’t recovered from March’s sucker-punch of a pull-back, or have recovered and still remain relatively cheap. There aren’t many among the large-caps, but there are a few of these high “value & momentum” stocks.
Traditional value managers tend to treat…
