Value stocks in the US have not fared well for the last decade. The value premium, or the performance difference between value and growth stocks, has been about 3.5% in the US going back to 1928. More recently the value premium has been negative for 7 out of the past 10 years in the US. We are currently living through 1 of 13 10-year periods going back to 1928 where value has underperformed growth.

 

Russell 3000 Growth Russell 3000 Value
10-Yr Annualized Return USD (6/30/2018) 11.78% 8.60%
10-Yr Annualized Standard Deviation USD (6/30/2018) 12.14% 11.89%
Data source: Dimensional Returns Web

 

This is sad news for a value investor, but only if that value investor only owns US stocks. The value story has been much different in Canada over the same time period.

Canadian Growth Index (MSCI/Barra) Canadian Value Index (MSCI/Barra)
10-Yr Annualized Return CAD (6/30/2018) 1.05% 6.73%
10-Yr Annualized Standard Deviation CAD (6/30/2018) 15.33% 13.36%
Data source: Dimensional Returns Web

 

While US value may have trailed by 3.18% over the past 10 years, Canadian growth stock have outperformed by a whopping 5.68%! International value has underperformed international growth over the same period, but not by much.

MSCI EAFE Growth Index (net div.) MSCI EAFE Value Index (net div.)
10-Yr Annualized Return USD (6/30/2018) 3.45% 2.17%
10-Yr Annualized Standard Deviation USD (6/30/2018) 13.10% 14.64%
Data source: Dimensional Returns Web

 

So value over the last 10 years hasn’t been great in the US or international markets, but it has been very strong in Canada. What if we compare a value and a growth portfolio made up of 1/3 each in Canada, US, and International stocks?

Diversified Growth Diversified Value
10-Yr Annualized Return CAD (6/30/2018) 7.46% 7.90%
10-Yr Annualized Standard Deviation CAD (6/30/2018) 11.79% 11.42%%
Data source: Dimensional Returns Web

 

Well, would you look at that. Despite the underperformance of US value stocks, combining global value stocks has produced not only higher returns, but also a lower standard deviation than combining global growth stocks. US stocks get a lot of coverage, but they are not the only assets that affect the outcomes for investors. A relatively short period of value underperformance in the US is certainly not a reason to abandon the strategy, especially when we see that a diversified portfolio of value stocks has still outperformed a diversified portfolio of growth stocks.