Using the Bloomberg backtester, I looked at the performance of several investing factors during 2016. I found value investing performance outperformed other factors, and the growth factor was the worst performing. I followed the default methodology of the Bloomberg backtester which buckets the universe, the S&P 500 Index in this case, into 5 quintiles, calculates daily quintile returns, geometrically cummulates the annual returns, and calculates q-spreads (top quintile return minus bottom quintile return). The 5 equal-weighted portfolios for each factor are rebalanced daily, and the time period used for the analysis is the calendar year 2016.
To measure the value factor, I used several financial statement measures, but the best performance is from price-to-book. I looked at dividend yield and volatility measures such as historical price volatility and beta. Although these factors performed positively, they clearly underperformed value. The most surprising result of the analysis to me was the underperformance of the growth factor. Revenue growth actually had a negative q-spread. This means stocks with faster growing revenue underperformed stocks with slower or negative revenue growth.
There are going to be qualitative explanations for these results which I am not going to go into here, but it's good to keep the facts in mind when listening to the pundits on TV.
Michael Grove, CFA