Does the value premium work internationally?

Question

AcadiFi · Accepted Answer

The value premium has historically existed internationally and appears more persistent outside the US in recent decades.

**Empirical evidence**:
- 1975–2024 US value premium (top vs bottom P/B quintile): ~2.0% annualized.
- 1975–2024 international (ex-US) developed value premium: ~3.4% annualized.
- 2014–2024 US value: NEGATIVE 1.8% (growth dominated).
- 2014–2024 international value: POSITIVE 1.1% (more persistent).

**Why international value may be more robust**:
1. US market structure is more efficient, narrowing anomalies.
2. US growth stocks (FAANG-era) dominated indices, creating extreme concentration.
3. International markets have more mean-reverting sector rotation — European financials, Japanese industrials cycle more predictably.
4. Currency effects can amplify value factor returns when local-currency-weak value stocks are held by USD investors during dollar strength reversals.

Worked example: Pendergast Quantitative Funds runs regional value tilts. Over 2020–2025, US value tilt added +0.2% vs benchmark while international developed value tilt added +2.1%. The firm now overweights international value sleeves more aggressively.

**Construction considerations**: International value portfolios often screen on P/B, P/E, and dividend yield combined. Country neutrality (don't let value tilt become a country bet) is a key design choice.

**Risks**: Value can experience multi-year drawdowns internationally too — 2015–2019 was painful for international value. Crowded factor trades may erode premiums as more capital targets them.

Bottom line: international value has shown more consistent premium than US value in the recent decade, but both are vulnerable to prolonged growth-dominated regimes.

Does the value premium work internationally?

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