The theory is that value stocks have a margin of safety, and hence, they tend to fall less. Intuitively, if you already buy stocks that are priced lower than their worth, how much more can they fall? They should fall less than stocks that are priced more than they are worth.
Investopedia also says the same:
Value stocks are at least theoretically considered to have a lower level of risk and volatility associated with them because they are usually found among larger, more established companies. And even if they don’t return to the target price that analysts or investors predict, they may still offer some capital growth.
However, the Nifty 500 Value 50 index has historically fallen more than the broad market Nifty 500 index.
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| Image source: ETMoney’s Instagram post |
I have thoughts on why this could be, but they are mostly just opinions rather than facts with data to back them. I’ll just say one thing: don’t invest in this Value index if you prefer to avoid large drawdowns.
PS: Also, don’t think that this index usually does better than Nifty 500. The rolling return data on the 5th image of the same ETMoney post makes it clear that the Nifty 500 index is a lot more reliable.
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