Value Factor Valuations Over Time: US And Developed – ValueWalk Premium
Value Factor Valuations

Value Factor Valuations Over Time: US And Developed

We built a simple tool recently to review so-called value spreads over time. (1)

Q1 hedge fund letters, conference, scoops etc

This tool maps out the median valuations for the top decile and bottom decile “cheap stock” portfolios (as measured by EBIT/TEV).

Why might this be useful?

This tool allows one to identify the “valuation” spread between the cheapest stocks and the most expensive stocks in the universe. Some research suggests this can be a useful prediction device.

The analysis to build the data works as follows:

  • Identify Universe: Top 1500 stocks by market cap (US and EAFE)
  • Identify Valuation: Calculate EBIT/TEV for all firms in the universe
  • Decile Splits: Sort the 1500 stocks into 10 buckets, 150 stocks each, equal-weight, rebalance monthly
  • Calculate Median Valuation: For each decile, calculate the median EBIT/TEV
  • Plot the data

We create the following time series:

  • US Value = Top Decile EBIT/TEV (1)
  • US Glamour = Bottom Decile EBIT/TEV (10)
  • US Spread = US Value – US Glamour
  • EAFE Value = Top Decile EBIT/TEV (1)
  • EAFE Glamour = Bottom Decile EBIT/TEV (10)
  • EAFE Spread = US Value – US Glamour

Here is a chart of the spreads since 1992 for the US and EAFE. You can dig in to the tool for the raw data and additional breakouts on the data.

Value Factor Valuations



Spreads aren’t crazy and fairly in line with historical norms. Surprising.

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  1. something we’ve discussed in the past many times. Example here.

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