Stockholm (Ekonamik) – The spread of COVID-19 triggered panic among investors in the first quarter of the year and sent markets reeling and company valuations plunging. Among its many effects, the coronavirus-triggered market turmoil exacerbated one interesting phenomenon. The valuation spread between the market’s most expensive and cheapest stocks has risen to its highest level, wider even than during the dot.com bubble and the 2008 financial crisis. Investors are paying considerably more than usual for the stocks they love and a lot less for the ones they hate.
Cliff Asness, the co-founder of AQR Capital Management, penned a white paper titled “Is (Systematic) Value Investing Dead?” where he shows the following chart of the value spread.
This spread represents the price-to-book spread between the most expensive 30% and the cheapest 30% of all stocks in the United States. At the end of March, the expensive stocks were almost 12 times more expensive than their cheap counterparts, almost twice as much as the median of 5.4 observed between 1967 and 2020. The spread at the end of March was at the 100th percentile and is likely even higher now. According to Asness, “market watchers are likely well aware that value’s performance in April and early May was again poor, and while we’re still calculating end-of-April spreads it is unlikely the results of this note will have changed given this. If anything, they’re likely even more extreme.”
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