Practical Applications of Risk-Mitigated Deep Value—Bigger Bang, Less Buck

In <ext-link><bold><italic>Risk-Mitigated Deep Value—Bigger Bang, Less Buck</italic></bold></ext-link>, from the Winter 2023 issue of <bold><italic>The Journal of Beta Investment Strategies</italic></bold>, <bold>Rob Brown</bold> of <bold>Integrated Financial Partners</bold> and <bold>Integrated Wealth Concepts</bold> proposes a pair of risk-on/risk-off trading strategies that alternate between holding “deep value” equities and US Treasury notes based on fluctuations in corporate bond yields. One strategy uses “moderate deep value” equities and 5-year Treasuries. The other uses “moderately aggressive deep value” equities and 10-year Treasuries. In both cases, the signal for switching to Treasuries is when the percentage of the current Moody’s BAA bond yield that exceeds its 11-month average is more than 7.5%. Moderate deep value and moderately aggressive deep value are defined as stocks with the lowest 30% and 20% price-to-book value ratios, respectively. Brown finds that the proposed strategies outperform the overall market, as well as basic value and growth strategies, by delivering higher absolute and risk-adjusted returns combined with superior downside protection.