American Investment Services, Inc.

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June 2023 – Value Stocks: A Reader Inquires

In recent years growth stock returns have been the primary drivers of US stock market returns, while value stocks have lagged. The following question from a long-time subscriber provides an opportunity to revisit this topic.

Q — On page 38 you state that “over the long-term large cap value stocks have generated annualized returns above those of the overall stock market.” On page 40, with the exception of 3-year annualized returns, large cap blends, (Vanguard S&P 500) outperformed value 1 year, 5 year and 10 year.

Would you explain or revise your position?

AIS – While we stand by our statement, you make a salient observation. We were somewhat vague in our reference to “value stocks” versus the “overall market.” So here will be more specific in defining the historical value premium.

You correctly point out that value stocks have underperformed recently. However, the value premium persists when one considers the full history of available data.

In the chart below we display the value premium with since 1926 (the first available date on the chart is 1936 because it displays trailing 10-year returns). To provide a clear depiction, we cite the Fama/French U.S. Value Research Index and compare it with the CRSP Market Index (these indexes are far broader and include far greater history than comparable indexes from the S&P or Russell).

Also In This Issue

ESG And The Rational Investor
Schwab TDA Merger
New To Our Fund Line Up
Your Home As An Investment
The High-Yield Dow Investment Strategy
Recent Market Statistics
The Dow Jones Industrials Ranked By Yield
Asset Class Investment Vehicles

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