Value Strategies: Market Hedge and Performance Edge
- Topics:
- Decision Analysis
- Tags:
- Freeman Associates Investment Management,
- Human Resources,
- Management,
- Performance,
- Performance Management,
- Strategy,
- Workforce Management
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Overview: The past five years qualifies as nearly a lifetime of experience in market behavior. Overall, investment styles behaved according to preconceptions. Growth soared when the market roared, and Value showed its toughness during the market slump. While this may have satisfied general expectations of style behavior, it didn’t prevent unpleasant times for many Value managers whose weak performance during the Bull market was unanticipated by many investors. During sustained periods of under-performance, typically in sharply rising markets, it is particularly important for Value managers to retain their discipline. When markets inevitably weaken, Value strategies, due to their built-in market hedge and valuation edge, will excel on a relative basis. This article aims to provide a better understanding of Value’s strengths and weaknesses. Using a very simple application of the Capital Asset Pricing Model (CAPM), will decompose some Value strategy returns into their alpha and beta components. This will, in turn, explain why strategies with positive alphas can underperform while those with negative alphas outperform.
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Format: PDF | Size: 78KB | Date: Jul 2001 | Pages: 8
