Results released by Realindex quantitative analyst Wang Chun Wei show that if investors exclude the top five growth stocks, including Tesla, Amazon and Apple, value outperforms growth investing.

“We don’t believe that value investing is dead, just because it has underperformed growth in recent years. In fact, it’s to be expected in an environment where a handful of outlier stocks have inflated the index, fuelled by investor sentiment and easy monetary policy.

“There is no magic factor that consistently delivers alpha month in, month out. Value, like other styles, is known to have long periods of underperformance, followed by outperformance. Over the long run, value investing works, and a plethora of empirical evidence supports the value premium,” Dr Wei said.

The analysis points to the assumption in a low-growth world that there is little hope for poor quality names to outperform is just not true.

“It’s true that growth stocks have done well in the recent past. This is not only due to the rise of intangibles, but also to favourable macroeconomic conditions.”

When analysing price-to-book ratios, it becomes apparent that expansion of the most expensive stocks is attributable to growth stocks becoming “pricier” as opposed to value stocks becoming “cheaper”. This effect is compounded by the stellar growth of a handful of names which distort the market, according to the paper.

“In essence, the recent outperformance of growth has been driven by a very narrow set of technology stocks, and we think this is unsustainable.

“Isolating five stocks, including Tesla, Amazon and Apple, our paper shows that the value underperformance, relative to the market capitalisation benchmark, largely disappears once we exclude these names. To us, the outperformance of growth looks quite unstable. If we take out a handful of US tech darlings, value has actually kept pace with the broad market,” Dr Wei concluded.