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Can Value Investors Do Good?

Combining ESG and Value Investing

Nicolas Rabener
10 min read
4 Feb 2019

SUMMARY

  • ESG factors underperformed the Value factor and market since 2009
  • Integrating ESG in Value investing decreased returns, but increased risk-return ratios
  • Residual ESG factors are likely to generate negative returns given the focus on stakeholders, not shareholders

INTRODUCTION

Value investors frequently comment on how challenging the strategy has been in recent years. However, the CEOs of companies that traded at low valuation multiples likely had much tougher jobs. Value stocks typically trade cheaply for reason, e.g. due to declining sales, a lack of strategy, or too much leverage. In the worst case, it might be a combination of these. Corporate management has to tackle these issues while hoping to have the support of their shareholders.

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