Skip to main content
The Globe and Mail
Support Quality Journalism
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); }

Investors have done spectacularly well in recent decades by snapping up “broken” assets.

If the same trend holds true this time around, investors in value stocks and emerging markets are poised for much better times ahead.

“The press is often quick to label asset classes broken,” according to a recent report from Research Affiliates LLC, a market analysis firm based in Newport Beach, Calif. “Rarely is this the case, although exceptions do exist.”

Story continues below advertisement

The report’s co-authors, John West and Amie Ko, point to several cases where despised categories of investments staged massive comebacks after being given up for lost.

The most famous example is U.S. stocks, which were declared dead by Business Week magazine in an August, 1979, cover story.

In another premature obituary, investing newspaper Barron’s sneered at real estate investment trusts (REITs) in 1998 and questioned whether they still deserved a place in investors’ portfolios. A year later, Economist magazine did its best to discourage commodity speculators by declaring that oil at under US$20 a barrel was cheap and “is likely to remain so.”

Other experts wrote off small-value stocks in 2000, and still others dismissed high-yield bonds in December, 2008.

So much for the wisdom of pundits and experts.

In the five years after an asset class was declared broken, each roared back,” Mr. West and Ms. Ko write. During their five-year rebounds, REITs, commodities, small-value stocks and high-yield bonds beat the broad stock market by an average 15 per cent a year.

To be sure, such revivals don’t always occur. People who bought Russian or German stocks during the First World War never got their money back, for instance. But the evidence, at least in North America over the past few decades, is that asset classes rarely die.

Story continues below advertisement

“Our primary point is not to conclusively say that bottom-decile performance will be succeeded by brilliant subsequent returns,” they write. Instead, their central contention is that investors shouldn’t run for cover when experts claim that an asset class is permanently broken.

Investors in emerging-market stocks and value stocks have been hearing the naysayers for a while. Both asset classes have fared dismally in recent years and both were declared permanently broken by prominent publications over the past year.

Mr. West and Ms. Ko stress how similar the plight of these two despised asset classes is to similar situations in the past where strong rebounds took place. However, they don’t build a specific case for either value stocks or emerging-market stocks.

There are good reasons for their caution. Emerging markets have been rocked by the novel coronavirus and growing trade tensions. Value stocks – that is, stocks trading at relatively low prices compared to their earnings and other company fundamentals – have fallen into disregard as investors chase shares of fast-growing online businesses.

Rather than betting big on a quick rebound in emerging markets and value stocks, investors may want to focus on the broader lessons from the Research Affiliates survey.

The report demonstrates that any asset class is likely to endure protracted patches of rough performance. Good investing consists in large part of looking beyond those ups and downs and remaining diversified and patient, Mr. West and Ms. Ko assert. In today’s turbulent market, that seems like an excellent point to keep in mind even if you don’t own value stocks or emerging-market investments.

Story continues below advertisement

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies