Value investing versus growth investing in South Africa : valuation disparities and subsequent performance

Du Toit, Stefanus Gerhardus (2012-12)

Thesis (MComm)--Stellenbosch University, 2012.

Thesis

ENGLISH ABSTRACT: Investment styles and more particularly the relative outperformance of certain styles under differing market conditions have been widely researched. Furthermore, investment professionals are constantly on the lookout for factors that could possibly be indicative of the subsequent outperformance of certain investment styles. With the value-growth phenomenon at the centre of this debate, there is an attempt in this study to shed some light on this anomaly from a purely South African perspective. Using monthly data for the period 1991 to 2011, and calculating price-to-book value (P/B) ratios for all the stocks included in the FTSE/JSE All-Share Index, the methodology employed by The Brandes Institute (2009A), based on work of Lakonishok, Shleifer and Vishny (1994), will be utilised in this study in order to determine whether the relative outperformance of value stocks over growth stocks can be anticipated in advance. Stocks were ranked monthly on the basis of their relative P/B ratios and subsequently four new portfolios were created each month, with the growth portfolio consisting of the highest 25% P/B ratio stocks and the value portfolio capturing the lowest 25% P/B ratio stocks. After portfolio creation, quartile-by-quartile performance was tracked over the following five years. The relative performance of the value versus growth portfolio was compared to the valuation difference multiple, calculated as the median P/B ratio of the growth portfolio divided by the median P/B ratio of the value portfolio, to determine if a relationship existed between valuation disparities and the subsequent relative performance of value and growth stocks. The all-cap (FTSE/JSE All-Share Index) segment was further divided into large-cap (FTSE/JSE Top-40 Index), mid-cap (FTSE/JSE Mid-cap Index) and small-cap (FTSE/JSE Small-cap Index) segments in order to determine if a consistent relationship could be identified within different market capitalisation sectors of the market. A significant relationship was found between the valuation difference multiple and subsequent performance of value and growth stocks in all segments of the JSE Mainboard. Historically, the higher the valuation difference multiple, the higher the subsequent outperformance of value stocks over the subsequent five-year period, as compared to growth stocks. This was found to be significant within the FTSE/JSE All-Share Index, the FTS/JSE Top-40 Index, the FTSE/JSE Mid-Cap Index and the FTSE/JSE Small-Cap Index. An exception to the above findings was the post-2002 period within the FTSE/JSE Top-40 Index. During this period it was not possible to identify a relationship between the valuation difference multiple and subsequent value stock outperformance.

AFRIKAANSE OPSOMMING: Verskillende beleggingstyle en meer spesifiek, die relatiewe uitprestering van sekere style onder verskillende mark omstandighede, is wyd nagevors oor die afgelope paar dekades. Professionele beleggers is ook gedurig op die uitkyk vir moontlike faktore wat die uitprestering van sekere beleggingstyle vooraf kan aandui. Met die waarde-groei verskynsel sentraal in hierdie debat, is die doelwit in hierdie studie om die waarde-groei verskynsel te ondersoek vanuit 'n eg Suid-Afrikaanse mark perspektief. Deur maandelikse data vir die periode 1991 tot 2011 te gebruik en daaropvolgende prys-tot-boekwaarde (P/B) verhoudings te bereken vir al die aandele wat deel was van die FTSE/JSE Alle-Aandele Indeks, sal daar in hierdie studie die metodologie van 'The Brandes Institute' (2009A) in die Verenigde State van Amerika, gebaseer op die werk van Lakonsihok, Shleifer en Vishny (1994), toegepas word om te probeer bepaal of die relatiewe uitprestering van waarde aandele oor groei aandele vooraf voorspel kan word. Aandele is maandeliks ingedeel op die basis van hul onderskeie P/B verhoudings. Deur hierdie proses is daar maandeliks vier nuwe portefeuljes geskep, met die groei portefeulje wat die hoogste 25% van P/B verhouding aandele bevat het en die waarde portefeulje wat die laagste 25% van P/B verhouding aandele verteenwoordig. Prestasie beoordeling van die nuut geskepde portefeuljes was die volgende stap in die navorsingsproses waar kwartiel-tot-kwartiel prestasie beoordeling oor die daaropvolgende vyf-jaar periode na portefeulje ontstaan, plaasgevind het. Die relatiewe prestasie van die waarde en groei portefeuljes is vergelyk met die waardasie pariteit maatstaf, wat bereken is as die mediaan P/B verhouding van die groei portefeulje gedeel deur die mediaan P/B verhouding van die waarde portefeulje. Hierdie vergelyking is gebruik om te bepaal of 'n verhouding tussen die onderskeie waardasies van groei en waarde aandele en daaropvolgende prestasie bestaan. Die alle aandele segment is verder ook opgedeel in drie onderskeie indekse om te bepaal of 'n verwantskap binne al die verskillende markkapitalisasie sektore bestaan. Die grootste markkapitalisasie aandele is verteenwording deur die FTSE/JSE Top-40 Indeks; die medium markkapitalisasie aandele deur die FTSE/JSE Mid-Cap Indeks; en die kleinste markkapitalisasie aandele wat deel vorm van die FTSE/JSE Alle-Aandele Indeks is verteenwoording deur die FTSE/JSE Small-Cap Indeks. 'n Beduidende verwantskap is gevind tussen die waardasie pariteit maatstaf en daaropvolgende vyf-jaar prestasie van waarde en groei aandele. Histories hoe hoër die waardasie pariteit maatstaf, hoe groter die relatiewe uitprestering van waarde aandele oor die daaropvolgende vyf-jaar periode. Hierdie verskynsel is beduidend gevind vanuit 'n FTSE/JSE All-Share Indeks, FTSE/JSE Top-40 Indeks, FTSE/JSE Mid-Cap Indeks en FTSE/JSE Small-Cap Indeks perspektief. 'n Uitsondering was die FTSE/JSE Top-40 Indeks vir die periode na 2002, waar dit nie moontlik was om 'n beduidende verwantskap te identifiseer nie.

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