Hedge fund guru Joel Greenblatt says he’s seeing a wide disparity in the way the current market values large stocks and small stocks.
Greenblatt tells Barron’s that, according to his valuation method, the Russell 2000 index of smaller stocks is in the 5th-most-expensive percentile over the past 23 or so years. When priced at these levels, stocks have gone on to lose an average of 3 to 4 percent over the next year. The Russell 1000 index of larger stocks, meanwhile, is only in the 36th-most-expensive percentile using that same timeframe. Historically, when stocks have been priced at that level, they have gone on to gain between 6 and 11 percent, on average, over the next year, Greenblatt said. Greenblatt also talked about his overall investing approach, and how he values stocks.
Validea’s Joel Greenblatt-based portfolio is up 10.2% annualized since its late 2005 inception vs. 4.9% for the S&P 500. Check out its holdings here.