AQR’s Asness Joins Star Managers to Plead the Case for Value


What do you get when three superstar value managers jump on a Zoom call? Self-deprecation, mutual flattery and an impassioned case for why the stock market is in a bubble.

During a webinar for clients on Wednesday, AQR Capital Management founder Cliff Asness joined Gamco Investors Inc.’s Mario Gabelli and LSV Asset Management’s Josef Lakonishok in making a plea: Don’t give up on value, and if you can, double down on it.

It’s a tough message to sell. Value is on track for its worst year versus growth since at least 1975 after a long spell of underperformance. The three investors, who between their firms run roughly $270 billion, know it all too well. They all manage funds that have lagged the market benchmark for years now.

“The spread between cheap and expensive stocks is one of the few things out there that’s extremely compelling on a medium-term horizon,” said Asness, who wrote a paper defending systematic value earlier this year.

AQR’s Asness Joins Star Managers to Plead the Case for Value

Lakonishok, a quant who wrote some of the best-known papers on value investing, made his case with statistics. U.S. growth stocks are typically 20% pricier than the benchmark, but they are now 50% more expensive. Theoretically, that could be justified by much higher future growth rates, but it’s very hard for companies to increase their profits at the same pace beyond five years, Lakonishok said, citing his own 2001 research.

Or consider the fact that historically, the 10 largest S&P 500 constituents tend to trade at the same multiple as the rest of the index. Currently, the big companies are valued nearly 60% higher.

“The last couple of years were more than crazy,” said Lakonishok, a former finance professor. “If it’s not a bubble, I don’t know what to call it.”

Along with moderator Jeremy Siegel, who teaches at the University of Pennsylvania, the three panelists debated some of the potential reasons behind value’s poor run, from near-zero interest rates to the rise of passive index investing and the digital economy.

“There are periods when people hate bargains, but eventually greed will take over and they will go to T.J. Maxx,” Lakonishok said.

Gabelli, a stock picker, made a case for buying stocks that will benefit from broad trends, such as the fight against global warming, more U.S. infrastructure spending and technological changes such as online betting..

“Change and creative innovation are beautiful, and we think not paying up for this is an even better way to go,” he said.

©2020 Bloomberg L.P.

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