Exceptional returns from inbestMe’s ETF portfolios in 2024

In this report, we complement our portfolio performance reports through the end of 2024 with a review of the performance of our Value ETF portfolios.

This article also provides an opportunity to analyze the overall performance of the value factor globally and of several popular author funds in Spain.

Value stocks have lagged behind in 2024

In our previous report on Value Investing, we discussed how 2023 was a year in which value investing had lagged behind.

The chart above shows how, at the end of 2024, growth stocks (+25.1%) have again boosted the MSCI World (+17%), while value stocks (+9%) have lagged significantly, lagging 8 percentage points behind the MSCI World and more than 17 percentage points behind growth.

Value stocks historically remain very lagging

Since the launch of our Value ETF portfolios, we have reported on the significant gap between the return of value investments, at 61%, compared to the main index (105%) and, in particular, growth stocks, dominated by technology companies that accumulate an exceptional 152% or 14.1% annualized (CAGR).

As we see in the table below, this was the period where this difference was most significant, followed by the period from 2015 to 2023.

If we go back further in time, for example, to 2000, both styles show more similar annualized returns, around 6% (see table below).

Although it may seem surprising, value investors expect a reversion to the mean. For this reason, maintaining exposure to the value factor can be a good strategy for investors who believe in its advantages.

And there’s good reason for this, as the gap between growth (9.1% annualized return) and value (+7.8%) has stood at 1.3 percentage points since 1995, translating into very significant differences in cumulative returns (1,266% vs. 846%). As we’ve seen, the growth factor has once again outperformed value in 2024, further widening this gap.

Note: Returns measured in euros in some periods are slightly different due to the currency effect, but the differences between the indices obviously remain.

Exceptional returns from value portfolios in 2024

During 2024, all of our portfolios have generally achieved exceptional returns, exceeding annual return expectations.

Our value indexed portfolios have also benefited from the market recovery, particularly in equities, and have returned an average of +8.3%. In 2024, portfolio returns ranged from 4.1% for Profile 1 (4.2% for the same profile as the standard ETF indexed portfolio) to 11.5% for Profile 10 (14.9% for the same profile as the standard ETF indexed portfolio). The diversification of our value portfolios has helped minimize the gap between the indices, reducing the 8-point gap between the indices (MSCI World vs. Value) to 3.4 points for Profile 10.

On average, value ETF portfolios returned 8.3%, which is 1.4 percentage points less than standard ETF portfolios, also in line with the relative underperformance of value ETFs mentioned above.

Looking longer term, overall value investing performance has been weak since 2018. As a result, our value portfolios, especially those with higher profiles, have had an average annualized return approximately 1% lower than our standard portfolios.

Our Value indexed portfolios will always be among the best

Since launching our Value portfolios in early 2018, we have regularly compared them with some of the most popular Value funds in Spain. These portfolios have weathered a variety of challenging situations, including the correction at the end of 2018, the bear market during the COVID-19 crisis, and the bear market related to inflation and the war in Ukraine. 2023 and 2024 have been years of recovery.

Our Value indexed portfolios were 7 years old at the end of 2024. We conducted a detailed analysis at the end of 2022 with the following value funds in Spain: Azvalor Internacional FI (AZVAINT), Bestinver Internacional FI (BESTINT), and Cobas Internacional FI (COBASIN). inbestMe’s value ETF portfolio is represented in the table as inbestMe 10.

Continuing with this analysis, the fund with the best profitability from 2018 to 2024 is the Azvalor International fund (AZVAINT in the table) thanks to its excellent results in 2021 and 2022.

They are probably unrepeatable, in fact in 2023 and 2024 AZVAINT was the worst fund, accumulating 0.4% in the latter (in a very good year). Here, the same applies to past returns; they are no guarantee of future returns, since an investor who had invested in AZVAINT at the beginning of 2023 would have accumulated a return of 10.2%, while both BESTINT (+42%) and COBASIN (+38%) would have clearly performed better. The inbestMe10 portfolio has also accumulated much more in these last two years, 29%.

This is because the worst fund of 2021 and 2022, Bestinver Internacional, was the best in 2023. And in 2024, the best was Cobas Internacional FI, which was the most behind, standing out with +23%.

Although the inbestMe10 portfolio is rarely the best in a given year, after 7 years it ranks as the second-best in profitability, with a 44.9% cumulative return, equivalent to an annualized return of 5.4%.

Let’s remember that one of the problems with active management is the lack of consistency. Statistics confirm that around 90% of actively managed funds do not outperform their indices, and if they do, it is no guarantee that they will do so in the future. In these repetitive analyses that we carry out, we see it in a more reduced way: one year a manager will do better (this year Cobas), another year it will be another (Azvalor in 2022). In the long term, indexed management will prevail, in this case with a value bias, and will always be at the top.

Our Value indexed portfolios have much less risk and are therefore more efficient.

Our value index portfolios are much lower risk and therefore more efficient and better for most value investors who don’t want to take unnecessary risks by following “signature” value funds that often make very aggressive bets on specific companies or sectors.

Active value funds make very specific bets, which means they differ greatly from the indices (BESTINT not so much, it seems more like an indexed fund), incurring high volatility and suffering much larger maximum drops: -62% for COBASIN, -54%. BESTINT’s maximum drop was -37% (this fund seems more indexed), while inbestMe10 stands out for having had the smallest drop (-34%).

The most relevant data are summarized in the following table:

As can be seen, the value funds analyzed maintain high volatilities (an indicator of risk), ranging from 17% for BESTINT to 21% for AZVAINT, located further to the right (higher risk) in the following graph.

The inbestMe10 portfolio shows significantly lower volatility (13%) compared to the value funds, with a return-to-volatility ratio of 0.42. AZVAINT, despite having the highest annualized return, also has the highest volatility (21%), and although it achieves the best RAPV (return adjusted for volatility) with 0.48, the difference with inbestMe10 (0.42) is minimal. BESTIN and COBASIN show considerably lower and actually very poor ratios (0.28 and 0.15, respectively).

In conclusion, our value index portfolios offer lower volatility and drawdowns, ranking second in both returns and risk-adjusted returns. Therefore, they are an attractive option for investors seeking exposure to value investing but prefer to avoid the extreme risks associated with some value funds.

Could the next few years be good for value investing?

Although it’s impossible to predict the future with certainty, value investing can be an excellent diversification option right now for investors with high equity exposure, especially given that major indices are currently dominated by the technology sector and growth styles. Our value ETF portfolios offer an effective way to achieve this diversification through an alternative investment style.

The year 2025 has so far started much better for value stocks, as can be seen in the chart above: value stocks (+5%) are accumulating 8 percentage points more than growth stocks (-3%).

Fuente MSCI

In addition to diversification, investors can find other positive factors in value stocks. Current MSCI data shows that global value stocks are much more reasonably priced than growth stocks, with a forward P/E of 17/34 (50% lower) and a forward P/E of 15/27 (45% lower). Furthermore, long-term history may be in their favor: MSCI reports that since 1974, the annualized return of the MSCI World Value Index has been 11.4%. This is almost one percentage point higher than the MSCI World Growth Index (10.5%) and 0.4 percentage points higher than the MSCI World Index (11%).

Still, it’s worth remembering that value investing isn’t the only way to achieve your financial goals. In fact, our standard diversified index fund or ETF portfolios are an excellent alternative that has proven effective, achieving exceptional results in 2024. Even Warren Buffett, recognized as one of the greatest advocates of value investing, generally recommends indexing for most investors. Value investors must be patient, but history is on their side: these differences with respect to the growth factor have not persisted over the long term.

You can review previous reports:

• inbestMe Value Indexed Portfolios in 2023
• inbestMe Value Indexed Portfolios in 2022
• inbestMe Value Indexed Portfolios in 2021
• Our Value Indexed Portfolios Continue to Outperform Value Funds in 2020