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The Journal of Index Investing

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Focused Value

Deepika Sharma, Muling Si and Josephine Smith
The Journal of Index Investing Fall 2019, 10 (2) 63-79; DOI: https://doi.org/10.3905/jii.2019.10.2.063
Deepika Sharma
is a director at BlackRock in New York, NY
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Muling Si
is an analyst at BlackRock in San Francisco, CA
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Josephine Smith
is a director at BlackRock in San Francisco, CA
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Abstract

Deep value strategies hold concentrated stock portfolios that trade at significant discounts to their intrinsic value. Such stocks tend to have significant risks: stocks with high stock-specific volatilities may have transitory low price movements; stock prices may be low because of recent negative price trends; and stocks’ earnings quality may be poor giving rise to their low valuations. In addition, the risk of value traps—that low prices may remain low for a long time—is exacerbated with deep value strategies. The authors develop a systematic deep value strategy that is designed to combine the concept of deep value investing while mitigating these risks. Using hypothetical backtested data, the deep value strategy has exhibited attractive risk-adjusted returns, including offering diversification to traditional value strategies.

TOPICS: Analysis of individual factors/risk premia, factor-based models, style investing

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The Journal of Index Investing: 10 (2)
The Journal of Index Investing
Vol. 10, Issue 2
Fall 2019
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Focused Value
Deepika Sharma, Muling Si, Josephine Smith
The Journal of Index Investing Aug 2019, 10 (2) 63-79; DOI: 10.3905/jii.2019.10.2.063

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Focused Value
Deepika Sharma, Muling Si, Josephine Smith
The Journal of Index Investing Aug 2019, 10 (2) 63-79; DOI: 10.3905/jii.2019.10.2.063
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  • Article
    • Abstract
    • VALUE INVESTING: THE EVIDENCE
    • BUILDING A SYSTEMATIC FOCUSED VALUE STRATEGY
    • SIMULATED RESULTS AND ROBUSTNESS TESTS
    • FACTOR EXPOSURE USING FAMA FRENCH FIVE-FACTOR MODEL & BARRA GEMLT RISK MODEL
    • CONCLUSION
    • ACKNOWLEDGMENTS
    • ADDITIONAL READING
    • ENDNOTES
    • REFERENCES
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