Are Value Stocks Dead? Evidence and Outlook

Are value stocks dead? This article explains what “value stocks” means, reviews long‑run evidence and the recent multi‑year underperformance, surveys research on causes (measurement, market structu...

2025-12-25 16:00:00

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Are value stocks dead? This question — asked by investors, analysts, and media — probes whether the long‑standing value premium in public equities has permanently disappeared. In brief: mainstream research and many practitioners answer "no" — value experienced extended underperformance in recent cycles, but a combination of measurement issues, market structure changes, and valuation spreads explains much of the weakness; whether value outperforms going forward depends on mean reversion, valuation differentials, and how investors define and implement value strategies.

What you will learn

A clear definition of "value stocks" and common measurement methods.
Historical evidence for a value premium and key episodes of underperformance.
Research‑backed causes for recent weakness and adjusted measurement fixes.
Practical, non‑advisory implications for portfolio construction and implementation using Bitget tools.

(Note: this article focuses strictly on public equity markets — developed and emerging — and does not address unrelated uses of the phrase.)

Definition and scope

What are "value stocks"?

"Are value stocks dead" targets the investment style that buys companies perceived to be cheap by fundamental metrics. Traditional indicators include:

Book‑to‑market (B/M) ratio (high B/M → value).
Price‑to‑earnings (P/E) and forward P/E.
Enterprise value to EBITDA (EV/EBITDA) or EV/EBIT (EV/EBIT).
Dividend yield and cash‑flow‑based ratios.

Academic research often uses simple, transparent metrics (e.g., book‑to‑market) to construct the "value" factor. Practitioners frequently use composite or enhanced measures that combine multiple signals, and some capitalise intangible investments (R&D, advertising) to avoid undercounting assets.

Scope matters

When asking "are value stocks dead" it matters which universe and method you use:

Large‑cap vs small‑cap: value performance often differs across market‑cap segments. Small‑cap value historically delivered a larger premium but also larger volatility.
Developed vs emerging markets: regional cycles produce divergent outcomes for value and growth.
Systematic (factor) vs fundamental (stock‑picking): quantitative factor strategies differ from discretionary value investors in portfolio construction, turnover, and risk exposures.

Historical performance and the value premium

Decades of empirical work document a historical value premium: higher average returns for portfolios formed on cheap valuation metrics versus expensive ones. Key points:

Foundational studies (e.g., Fama–French) show that across many decades and markets, high book‑to‑market stocks tended to outperform low book‑to‑market stocks after adjusting for market beta.
The value premium is not constant: it exhibits long cycles with long stretches of outperformance and underperformance.
Over multi‑decade horizons, value has delivered incremental returns versus growth, but with higher volatility and pronounced drawdowns.

These patterns underpin factor investing and the widespread belief among many investors that buying undervalued companies earns a return premium over time.

Recent underperformance (2007–2020s)

A central reason people ask "are value stocks dead" is the extended period of value underperformance since around 2007, and especially through the 2010s and early 2020s. Observations include:

Duration and magnitude: value underperformed growth for much of the 2010s and into the early 2020s, with particularly sharp divergence driven by large technology mega‑caps (often labelled the "Magnificent Seven").
Small‑cap weakness: small‑cap value underperformed as investor preferences concentrated in a handful of large, fast‑growing firms.
Sector concentration: growth leadership was concentrated in technology and communications services, while value exposures sat in financials, energy, materials and industrials.

The result: many traditional value screens (book‑to‑market) produced disappointing results for long periods, prompting questions about the strategy’s viability.

Empirical snapshot (contextual market datapoints)

As of January 15, 2026, according to reporting in Fortune and market commentary cited in industry coverage, several market signals showed rotation dynamics that matter to the value vs growth debate: the S&P 500 was up roughly 1.45% year‑to‑date, and Russell 2000 small caps had recently outperformed large tech early in the year; Treasury International Capital (TIC) data for November showed net foreign inflows of $212 billion, with a rolling 12‑month average near $100 billion/month — evidence that foreign capital continued to flow into U.S. assets. These flows and early‑2026 sector shifts illustrate that market positioning and macro conditions can move factor returns materially in the short term. (Source: Fortune reporting, as of January 15, 2026.)

Causes identified by research and practitioners

Researchers and experienced portfolio managers point to several overlapping explanations for the extended underperformance that inspired the question "are value stocks dead":

1) Valuation re‑rating and dispersion

Growth stocks experienced large multiple expansions (higher P/E) while value stocks saw either stable or contracting multiples. This re‑rating accounts for a significant portion of the return gap between growth and value over recent cycles.

2) Measurement issues — intangibles and accounting

Traditional book‑to‑market ignores or undercounts intangible investments (R&D, brand, software). Firms with large intangible capital can appear expensive under book‑based measures even if economic capital is substantial.
Research that capitalises intangibles or uses alternative value definitions finds that the measured value premium improves and that some of the "value’s death" story reflects mismeasurement rather than true disappearance.

3) Market structure and indexation

The rise of passive and index investing concentrates flows into large, dominant index constituents. When passive flows chase market‑cap weights, they can push up prices of already‑large growth names and reduce active rebalancing that historically helped value capture mean reversion.
Higher concentration in a few mega‑caps increases the sensitivity of benchmarks to a small set of firms, making factor results more dependent on the fortunes of those companies.

4) Macroeconomic environment and interest rates

Prolonged low interest rates increase the present value of distant earnings, favoring growth stocks with long‑duration cash flows. Conversely, rising rates can favor value sectors with near‑term earnings and cyclical exposure.

5) Profitability and quality migration

Over time, the relation between traditional value measures and profitability has shifted. Firms that look cheap on value metrics but have low or declining profitability create "value traps."
Incorporating profitability (quality) into value strategies—e.g., pairing value with profitability filters—has been shown to improve long‑term results.

6) Structural technological shifts

Dominant platforms and scale effects in digital industries created persistent advantages for a few firms. If such changes are permanent, they could reduce the opportunities for classic value reversion in those sectors.

Empirical decompositions and adjusted measures

Several high‑profile studies and practitioners have decomposed recent value underperformance into components such as profitability changes, valuation re‑rating, and migration effects. Notable findings include:

Research Affiliates and similar teams show that a large share of value’s shortfall versus growth can be attributed to valuation spread changes (i.e., multiple expansion for growth), not solely to fundamental deterioration in value firms.
When researchers capitalise intangible investments or use composite value signals (combining P/E, EV/EBITDA, cash flow yields), the historical value premium often re‑emerges or becomes more robust.
Adjusted measures that control for profitability or avoid accounting distortions deliver better risk‑adjusted returns than naive book‑to‑market portfolios.

These findings suggest the answer to "are value stocks dead" depends on definitions: measurement choices materially affect historical and forward estimates of value’s returns.

Evidence of recovery and counterarguments to "value is dead"

Multiple lines of evidence argue against the finality of the claim "are value stocks dead":

Cyclical recoveries: post‑pandemic and post‑2020 rotations (e.g., commodity and cyclical rallies, vaccine‑driven recoveries) produced episodes where value outperformed for sustained periods.
Valuation spreads: historically wide valuation gaps between growth and value have preceded periods where value outperformed, consistent with mean reversion.
Cross‑market divergence: in many non‑U.S. markets and in small‑cap universes, value has shown better relative returns than in the U.S. large‑cap universe during the same periods.
Practitioner perspectives: firms like Robeco, First Sentier, and commentators cited in outlets such as Forbes and Reuters have argued that value is not dead — rather, it is dormant and will likely benefit when macro and market structure conditions shift.

Importantly, recovery evidence is neither guaranteed nor timing‑predictable; historical patterns indicate long lags and volatility around factor cycles.

Measurement and implementation issues

Even if value is not dead, how investors define and implement value matters a great deal.

Definition choices

Book‑to‑market is simple and historically useful, but it can mislabel firms with large intangible capital as "expensive." Capitalising intangibles (R&D, advertising) often alters which firms qualify as value.
Cash‑flow or operating‑income based measures (EV/EBITDA, EV/EBIT) reduce exposure to accounting noise.

Sector and region neutrality

Pure value screens often load on certain sectors (financials, energy) and underweight technology. Many managers employ sector neutrality to avoid taking active sector bets when seeking pure value exposure.

Quantitative vs discretionary

Systematic value (quant) funds execute rules-based screens and rebalance frequently, capturing factor exposures mechanically.
Discretionary value investors can assess business quality, avoid value traps, and incorporate forward‑looking judgement, but they take on manager risk and lower scalability.

Value traps and screening

Cheap valuations can reflect genuine business decline. Combining value with profitability/quality filters helps avoid low‑probability recoveries and reduces the risk of permanent capital loss.

Expected returns, valuations, and practical implications

Investors often ask whether current valuation spreads imply higher future returns for value. Key points:

Valuation spreads as a signal: wide gaps between growth and value valuations historically forecast higher expected excess returns for value, all else equal, because of mean reversion in multiples.
Time horizons matter: value’s premium tends to manifest over multi‑year horizons; short‑term timing is notoriously difficult.
Portfolio construction: rather than market‑timing, investors can tilt portfolios to value through diversified factor allocations, rebalancing, and combining value with complementary factors (quality/profitability, momentum, low volatility).

Practical, non‑advisory guidance for investors (neutral tone):

Measure value carefully: prefer composite measures and consider capitalising intangibles.
Avoid naive one‑metric screens: simple book‑to‑market screens can pick firms suffering secular decline.
Diversify and rebalance: tilt to value but maintain diversification across sectors and regions.
Use appropriate products: systematic value ETFs or smart‑beta products can deliver factor exposure efficiently; for crypto and Web3 integration, consider custody and trading through secure platforms.

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Critiques and open questions

Despite improvements in measurement and promising episodes for value, open questions persist that keep "are value stocks dead" a live debate:

Structural change vs cyclical: Are technology and intangible capital shifts permanent enough to reduce mean reversion and shrink the historical value premium?
Indexation feedback loops: Has widespread passive investing permanently altered price discovery in a way that biases factor premia?
Profitability sorting: If profitability explains most of the premium historically, is "value" merely a proxy for profitability once appropriately measured?
Sample and survivorship: Historical inferences rely on long datasets — future structural changes may invalidate past patterns.

Researchers stress humility: historical factor premia are informative but not deterministic for the future.

International perspective and cross‑market differences

Value’s fortunes are not uniform across regions:

Emerging markets: cyclical exposures and commodity linkages mean that value sometimes outperforms in EM even when U.S. large‑cap value lags.
Europe and Japan: these markets have different sector compositions and corporate structures that can favour value relative to the U.S.
Small caps: historically stronger value premiums have been observed in small‑cap universes, though with higher volatility.

Thus, a global, diversified view often changes the conclusion about whether "are value stocks dead" in any absolute sense.

Short‑term indicators to watch (non‑predictive)

Valuation dispersion between growth and value (P/E spreads).
Interest rate trends and monetary policy guidance.
Flows: passive vs active flows and sector ETF inflows/outflows.
Earnings momentum and profit revisions across sectors.
Cross‑market divergences (U.S. vs International value performance).

Remember: these are indicators, not forecasts.

Summary: A balanced answer to "are value stocks dead"

Simple answer: most evidence and respected research conclude that value is not dead. Extended underperformance occurred, driven by valuation re‑rating, measurement issues, market structure, and macro conditions.
Nuance: the measured strength and practicality of value depend heavily on how value is defined and implemented. Enhanced measurement (capitalising intangibles, composite signals), layering quality/profitability filters, and global diversification improve prospects.
Timing and patience: value tends to reward long horizons and disciplined rebalancing; short‑term outcomes can be volatile.

Author note and next steps

This overview is neutral and evidence‑focused; it is not investment advice. If you want to explore factor‑tilted products, portfolio tools, or custody solutions:

Discover Bitget Exchange for secure execution of diversified equity and derivatives strategies.
Use Bitget Wallet for safe custody if you are integrating Web3 assets into a broader multi‑asset allocation.

Explore more Bitget resources to test factor exposures, backtest composite value definitions, and run scenario analyses for portfolio rebalancing.

Article updated and contextualized with market data as of January 15, 2026. Sources: aggregated practitioner research and industry reporting noted above.

The content above has been sourced from the internet and generated using AI. For high-quality content, please visit Bitget Academy.