UK - A newly published study of British high value stocks has discovered that value investment historically shows a strong performance premium, regardless of market capitalisation.
Although style-based performance analysis is not new in the US, the article represents the first analysis of such UK stocks using data collected from 1955-2001, according to the study’s authors -- Elroy Dimson, finance professor at the London Business School (LBS), Stefan Nagel, economics lecturer at Harvard University, and Garret Quigley, vice president and portfolio manager at Dimensional Fund Advisors.
The article, “Capturing the Value Premium in the United Kingdom”, appeared in the November/December issue of Financial Analysts Journal.The paper demonstrated a clear, long-term premium garnered by value stocks in the UK, a conclusion that should be noted by pension managers, said Philip Nash, Dimensional’s marketing director.
“Traditionally, many investors have looked at the equity market as being a kind of amorphous pool, where sometimes value will do well, sometimes growth, sometimes small, sometimes large,” Nash noted. “What the paper really does emphasise is that there is a systematically higher return component attached to value stock.”
The study also found that small cap stocks in particular had the greatest potential for strong premium, but emphasised that the premium gained by trading in high value, small cap stocks can be easily spirited away by the high transaction costs brought on by the relative illiquidity of this category. This requires a different trading strategy, Dimson commented.
“Unless you’re very careful with trading strategies, they’re just going to disappear in a puff,” he noted drily.
This analysis of UK stock data was possible only after gathering the raw data necessary for valid conclusions from several sources, Dimson said.
The study derived its data from the London Share Price Database (LSPD) and the LBS, linked with accounting information taken from Datastream, which began reporting on London companies in the 1960s and the Cambridge/Department of Trade and Industry database, which covers manufacturing companies.
For companies not found in those years or categories, the authors collected information from balance sheets in the official stock exchange yearbooks.
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