Here is our third quarter letter to investors.
osam.com/Commentary/osa…
Some highlights 👇
1/
September was a massive swing month for primary factors.
Value and Shareholder Yield thrived, momentum lagged, and quality was mixed...
osam.com/Commentary/osa…
Some highlights 👇
1/
September was a massive swing month for primary factors.
Value and Shareholder Yield thrived, momentum lagged, and quality was mixed...
Within the US large cap market, valuation spreads have really widened, across all value factors (first set of charts).
This is entirely driven by the multiple expansion in growth stocks, which have gotten more expensive (second set).
This is entirely driven by the multiple expansion in growth stocks, which have gotten more expensive (second set).
Zooming in, you can see the clear divergence in 2018—growth getting more expensive and value getting cheaper.
No surprise value has done very poorly during this period.
No surprise value has done very poorly during this period.
Yet this is happening as value is getting stronger. This chart shows improving eps change among value stocks, but the returns have gone the other direction.
Things get really interesting in small cap (which often has lots of junky companies). There are some DIRT cheap companies, but also tons with negative earnings.
In last cycle, % of small caps with neg earnings fell with time. Opposite this time—it’s risen with time.
In last cycle, % of small caps with neg earnings fell with time. Opposite this time—it’s risen with time.
To top it off, these negative small cap earners have more leverage that the positive earners.
The rapid stretching of growth multiples in large cap, and the breadth of highly-levered, money-losing companies in small cap stand out as dominant themes. As always, we are positioning our investors against these trends by focusing on valuation, quality, momentum, and sh yield.
