Research
Patience Powered by Fundamental Research
Quality and value have historically rewarded long term discipline.
Over the past 30 years, our research shows that quality and value factors have generated positive excess returns nearly 80% of the time, demonstrating their enduring role in long term wealth creation.
Since the Liberation Day rally began in April 2025, however, the rolling 12-month payoffs to both factors have been negative. This combination is historically rare, occurring previously only during the dot-com bubble, the Global Financial Crisis, and the COVID-19 pandemic.
At the same time, factor volatility has increased. Since 2020, the rolling 12-month standard deviation of quality and value factor returns has risen to approximately twice its average level during the preceding 20 years, accompanied by more frequent shifts in market leadership.
While this environment has created challenges, it may also be creating opportunity. Greater volatility and shorter leadership cycles can produce wider valuation dislocations, giving disciplined active managers more opportunities to identify fundamentally strong businesses at attractive prices.
The long term evidence remains compelling: periods when quality and value fall out of favor have been the exception, not the rule. For patient investors, maintaining discipline through these unusual environments can be essential to capturing their long term potential.
View our full small caps observations for deeper insight.
Rolling 12-Month Payoffs to Quality and Value
Russell 2000 Universe, 1995/01 – 2026/06
Source: Aristotle Capital Boston analysis using Bloomberg data over the years 1995/01 to 2026/06.
Rolling 12-Month Payoffs to Quality and Value
Russell 2000 Universe, 1995/01 – 2026/06
Source: Aristotle Capital Boston analysis using Bloomberg data over the years 1995/01 to 2026/06.
Russell Composite Value + Quality Factor Volatility and Payoffs
Russell 2000 Composite Value + Quality Q1-Q5 Payoff Volatility
Russell 2000 Monthly Composite Value + Quality Q1-Q5 Payoffs
Source: Data from Bloomberg and Russell Investments with analysis by Aristotle Capital Boston over the period 1/1995 to 6/2026.
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The opinions expressed herein are those of Aristotle Capital Boston (Aristotle Boston) and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Aristotle Boston reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.
All investments carry a certain degree of risk, including the possible loss of principal. Investments are also subject to political, market, currency and regulatory risks or economic developments. International investments involve special risks that may in particular cause a loss in principal, including currency fluctuation, lower liquidity, different accounting methods and economic and political systems, and higher transaction costs. These risks typically are greater in emerging markets. Securities of small- and medium-sized companies tend to have a shorter history of operations, be more volatile and less liquid. Value stocks can perform differently from the market as a whole and other types of stocks. The material is provided for informational and/or educational purposes only and is not intended to be and should not be construed as investment, legal or tax advice and/or a legal opinion. Investors should consult their financial and tax adviser before making investments. The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass. Information and data presented has been developed internally and/or obtained from sources believed to be reliable. Aristotle Boston does not guarantee the accuracy, adequacy or completeness of such information.
Past performance is not indicative of future results. The information provided in this report should not be considered financial advice or a recommendation to purchase or sell any particular security.
Differing historical time periods are selected throughout the presentation as we believe specific periods provide the most informative historical analog for the concepts presented.
The Russell 2000® Index measures the performance of the small cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership. The volatility (beta) of the portfolios may be greater or less than the benchmark. It is not possible to invest directly in this index.
The S&P 500® Index is the Standard & Poor’s Composite Index and is a widely recognized, unmanaged index of common stock prices. It is market cap-weighted and includes 500 leading companies, capturing approximately 80% coverage of available market capitalization.
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