Is the Glamour and Growth Trade Finally Turning?
Last week’s “Behind the Markets” podcast featured a discussion with Nir Kaissar, founder of Unison Advisors. Unison provides portfolios to individuals and institutions that leverage academic work on the long-term performance of various investment factors. Kaissar was an early advocate for focusing on valuations to rotate between the various investment factors and asset classes.
We had an extended conversation with Kaissar and Professor Jeremy Siegel on the CAPE ratio. Kaissar looks at the historically wide gap between forward earnings estimates and the 10-year average earnings used in the CAPE as an ominous sign, pointing to below-average forward-looking returns for the U.S. markets.
Kaissar thinks expected returns are higher in international markets than U.S. markets because of more reasonable valuations and that international value stocks in particular are set for better-than-average forward-looking returns.
Kaissar believes much of the U.S. large-cap growth outperformance is the result of investors looking to find the “next Amazon, Facebook or Google” but he thinks this search will end up futile and disappointing. He likens this approach to looking for lottery tickets that will not live up to expectations, and he speculates that WeWork’s disappointing IPO may be the first sign of a crack in exuberant growth stories in favor of a return to value investing.
Factors Nir Kaissar Believes In
Kaissar favors peer-reviewed academic literature, and he is convinced that both value and size factors should deliver long-term expected premium returns.
Kaissar also believes that profitability and some measures of quality are good factors in addition to momentum.
He is more skeptical of low volatility, as he wants to see more evidence before he is convinced of its long-term potential.
This was a great discussion; please listen to the full conversation below.
Jeremy Schwartz has served as our Global Chief Investment Officer since November 2021 and leads WisdomTree’s investment strategy team in the construction of WisdomTree’s equity Indexes, quantitative active strategies and multi-asset Model Portfolios. Jeremy joined WisdomTree in May 2005 as a Senior Analyst, adding Deputy Director of Research to his responsibilities in February 2007. He served as Director of Research from October 2008 to October 2018 and as Global Head of Research from November 2018 to November 2021. Before joining WisdomTree, he was a head research assistant for Professor Jeremy Siegel and, in 2022, became his co-author on the sixth edition of the book Stocks for the Long Run. Jeremy is also co-author of the Financial Analysts Journal paper “What Happened to the Original Stocks in the S&P 500?” He received his B.S. in economics from The Wharton School of the University of Pennsylvania and hosts the Wharton Business Radio program Behind the Markets on SiriusXM 132. Jeremy is a member of the CFA Society of Philadelphia.