Multi-Asset Value Payoff: Is Recent Underperformance Cyclical?

Abstract

Value is one of the most studied risk premia strategies across asset classes. Value factors, however, have struggled lately. To uncover the drivers of recent value factor underperformance, it is important to understand how value returns are affected by macroeconomic conditions. We build on the existing literature by directly measuring the macroeconomic characteristics of value factor portfolios, namely real economic growth and inflation exposures. By pairing methodologies commonly used to derive fundamental characteristics of equity portfolios, we are able to identify macro linkages that have not been previously made evident. Our holdings-based and factor-mimicking portfolio analyses provide insights into the behavior of value strategies across various asset classes, looking at both cyclical and idiosyncratic drivers.