As a complement to the reports on the returns of our portfolios at the end of 2023, here we review the performance of the value ETF portfolios.
Value stocks have lagged behind in 2023
In our previous report on Value Investing, we mentioned that 2022 was a year in which value investing (-6%) fell much less than growth investing (-23%).
In the chart above we can see how at the end of 2023, it was again the growth stocks +35.9% (or growth) that pulled the MSCI world (+21.8%) up, while the Value stocks (+8.7%) clearly lagged behind, 13 percentage points compared to the MSCI World and almost 28 compared to growth.
We already observed this trend in the report of 30/6/2023.
Value stocks remain historically very lagging.
We have been reporting, almost since the beginning of our value ETF portfolios, the significant gap between the profitability of “value” investments compared to the main index and especially to “growth” or technology stocks since then.
As we can see in the chart above, since 2018 (which is when we launched our value indexed portfolios), the MSCI World has accumulated a return of 72% (9.5% annualized return or CAGR), while the MSCI World value has accumulated 43% (APR of 6.2% with a lag of 3.3 percentage points), with the Growth style being the one that has accumulated the most returns (95%/12.2%).
As we can see in the table below, this has been the period where this difference is most significant, followed by the period from 2015 to 2023.
If we look further back, for example, since 2000 both styles have obtained practically equal annualized returns of 5.5% (see table below).
It is harder to believe with each passing year, but value investors are certainly expecting a reversion to the mean, and this is one of the reasons why it may make sense to continue to be exposed to the value factor for investors who value and understand this factor.
There may be plenty of reasons for this, since 1995 the difference between growth (8.6% annualized return) is 1 percentage point above value (+7.6%), which in terms of accumulated returns becomes a very significant difference (982% vs. 743%), increasing as we have seen this past year.
Exceptional returns for value portfolios in 2023
During this year 2023 all our portfolios have had exceptional returns.
Our indexed value portfolios have not been immune to the recovery of the markets, especially in equities, and have obtained an average return of +9.8%, which is 2.2 points above the weighted average return of investment funds in Spain, which has been 7.6% (according to Inverco).
Returns at the end of 2023 range between:
- 5.4% of profile 1, (5.6% for the same profile of the standard indexed ETF portfolio) up to
- 13.5% of profile 10, (14.7% for the same profile of the standard indexed ETF portfolio).
On average, the value ETF portfolios have been 9.8%, or 0.6 percentage points less than the standard ETF portfolios, in line with what has been mentioned above.
Our Value indexed portfolios versus value funds at the end of 2023
Since the launch of our Value portfolios in early 2018, we have regularly compared them to some of the most renowned Value funds in Spain. These portfolios have already been through all kinds of difficult situations: the end-of-year correction in 2018, the bear market due to the Covid-19 crisis, and the bear market related to inflation and the war in Ukraine.
Our Value indexed portfolios are 6 years old at the end of 2023. We carried out a detailed analysis at the end of 2022 comparing our profile 8 and 10 portfolios with the following value funds in Spain: Azvalor Internacional FI (AZVAINT), Bestinver Internacional FI (BESTINT), Cobas Internacional FI (COBASIN). inbestMe’s value portfolios are represented in the following table as inbestMe8 (profile 8) and inbestMe10 (profile 10).
This time we have made a “periodic table” (see table above) listing the different options in descending order of profitability each year. This sample is undoubtedly very limited, but it illustrates the lack of consistency of active management. It can be seen in this small sample that being the winner one year does not guarantee being the winner the following year, and much less being a winner in the long term.
The “winner” in the period analysed (2018-2023) remains the Azvalor Internacional fund (AZVAINT in the table) thanks to its excellent results in 2021 and 2022 (probably unrepeatable). But we see that this is no guarantee for the future, in fact in 2023 it is the worst fund and the loser of these years Bestinver Internacional is the winner of 2023.
As for the inbestMe value ETF portfolios (profiles 8 and 10), we see that they are rarely in the first position, but they are nevertheless right behind Azvalor Internacional and have been the first for many years, in fact this is the case again in 2023.
Let us remember that the problem with active management is the lack of consistency. Statistics confirm that around 90% of actively managed funds do not outperform their indexes. In these repetitive analyses that we do, we see it in a more reduced form: one year one manager will do better (this year Bestinver), another year it will be another (last year Azvalor), in the long term we believe that indexed value management will prevail or it will always be in the top or intermediate positions.
Our value indexed portfolios are much less risky and therefore more efficient.
In the 2022 closing report and in the various annual reports we have been doing, we devoted a lot of time to this. In general, active value funds make very specific bets and this causes them to deviate greatly from the indices, incurring high volatilities and suffering much higher maximum falls.
This is why our value indexed portfolios are a very good alternative to be exposed to value investing without incurring the extreme risks that these value funds take. It is also important to know that it is not necessary to be exposed to the value factor to achieve our objectives; our standard diversified index fund portfolios perfectly fulfill this function. In fact, the first follower of value investing, Warren Buffett, recommends indexing for most investors.
You can check out previous reports where we talk about this in more detail:
- inbestMe Value Indexed Portfolios in 2022
- InbestMe Value Indexed Portfolios in 2021
- Our Value indexed portfolios continue to outperform value funds
