Bivar Capital — Quantitative Research
Trending Value 1, 2 & 3The book promised 21% CAGR. We got 13.8% at best.
O'Shaughnessy's Trending Value combines value screening with momentum. The book reported ~21% CAGR. Our out-of-sample test with quarterly TTM data delivers 13.8% at best — real alpha, but far from what was promised. Instead of buying the cheapest stocks blindly, it buys the cheapest stocks that are also trending upward. We test three versions on 21 years of quarterly TTM data (2005–2026), with no survivorship bias.
What Is Trending Value?
Pure value composites (VC1/VC2/VC3) rank stocks by how cheap they are and buy the cheapest 25. The problem: some stocks are cheap for a reason — they're in structural decline, and buying them is catching a falling knife.
Trending Value adds a momentum filter: from the cheapest 20% of the universe (the "value pool"), select the 25 stocks with the highest 6-month price momentum. This ensures we only buy cheap stocks where the market has started to re-price them upward — confirming that the value thesis is playing out.
Step 1 — Value screenRank all stocks by value composite (VC1, VC2, or VC3). Take the cheapest 20%.
Step 2 — Momentum filterCalculate 6-month price momentum (return from t−6 to t−1, skipping most recent month) for each stock in the value pool.
Step 3 — SelectBuy the top 25 by momentum from the value pool. Equal weight.
Step 4 — HoldHold until next rebalance (monthly or annual).
TV1VC1 (5 factors) + Mom 6-1
Value without yield + momentum
TV2VC2 (+ SH yield) + Mom 6-1
Original O'Shaughnessy Trending Value
TV3VC3 (+ div yield) + Mom 6-1
Dividend yield variant + momentum
What Momentum Adds to Value
Adding a 6-month momentum filter consistently improves every value composite — higher CAGR, better Sharpe ratio, and lower drawdowns.
| Value Only (VC) | + Momentum (TV) | Improvement | Drawdown Reduction |
|---|
| 5 factors (no yield) | +10.2% | +12.2% | +2.0% | ~17pp |
| + Shareholder Yield | +10.0% | +12.7% | +2.7% | ~16pp |
| + Dividend Yield | +11.8% | +13.8% | +2.0% | ~11pp |
Momentum adds +2.0% to +2.7% CAGR and reduces drawdowns by 11–17 percentage points. The momentum filter avoids the worst value traps — stocks that are cheap and still falling. By only buying cheap stocks with positive price trends, the portfolio avoids catching falling knives.
Results — Annual Rebalance
12 portfolios averaged (one per rebalance month) to eliminate timing bias.
>$200M
| TV1 | TV2 | TV3 | S&P |
|---|
| Avg CAGR | +8.3% | +8.1% | +8.8% | ~8.4% |
>$5B
| TV1 | TV2 | TV3 | S&P |
|---|
| Avg CAGR | +9.3% | +10.3% | +9.9% | ~8.4% |
TV3 >$200M — by Rebalance Month
| Month | CAGR |
|---|
| Jan | +10.7% |
| Feb | +8.2% |
| Mar | +7.8% |
| Apr | +3.7% |
| May | +9.7% |
| Jun | +8.9% |
| Jul | +7.3% |
| Aug | +7.6% |
| Sep | +9.5% |
| Oct | +10.8% |
| Nov | +10.8% |
| Dec | +10.0% |
| Average | +8.8% |
TV3 >$5B — by Rebalance Month
| Month | CAGR |
|---|
| Jan | +10.9% |
| Feb | +12.9% |
| Mar | +10.8% |
| Apr | +10.4% |
| May | +8.6% |
| Jun | +8.5% |
| Jul | +8.8% |
| Aug | +9.2% |
| Sep | +9.7% |
| Oct | +9.4% |
| Nov | +8.3% |
| Dec | +10.7% |
| Average | +9.9% |
Results — Monthly Rebalance
TV3 >$5B monthly: +13.8% CAGR · +5.4% alpha · Sharpe 0.82
The best-performing Trending Value variant
>$200M
| Strategy | CAGR | Alpha | Sharpe | Sortino | Max DD | $100 → |
|---|
| TV1 | +10.7% | +2.3% | 0.55 | 0.81 | -53.2% | $857 |
| TV2 | +10.7% | +2.2% | 0.56 | 0.81 | -52.7% | $853 |
| TV3 | +10.5% | +2.1% | 0.55 | 0.80 | -57.4% | $829 |
| S&P 500 | +8.4% | — | 0.61 | — | — | $510 |
>$5B
| Strategy | CAGR | Alpha | Sharpe | Sortino | Max DD | $100 → |
|---|
| TV1 | +12.2% | +3.7% | 0.71 | 0.94 | -47.0% | $1,135 |
| TV2 | +12.7% | +4.3% | 0.75 | 1.00 | -46.7% | $1,253 |
| TV3 | +13.8% | +5.4% | 0.82 | 1.09 | -43.2% | $1,553 |
| S&P 500 | +8.4% | — | 0.61 | — | — | $510 |
Year-by-Year: TV3 >$5B Monthly
| Year | TV3 | S&P 500 | Alpha |
|---|
| 2005 | +44.9% | +8.4% | +36.5% |
| 2006 | +20.5% | +12.4% | +8.1% |
| 2007 | +4.8% | -4.2% | +9.0% |
| 2008 | -31.7% | -40.1% | +8.4% |
| 2009 | +27.9% | +30.0% | -2.1% |
| 2010 | +15.8% | +19.8% | -4.0% |
| 2011 | +3.3% | +2.0% | +1.3% |
| 2012 | +19.2% | +14.1% | +5.0% |
| 2013 | +31.4% | +19.0% | +12.4% |
| 2014 | +22.4% | +11.9% | +10.5% |
| 2015 | -11.8% | -2.7% | -9.1% |
| 2016 | +28.5% | +17.5% | +11.0% |
| 2017 | +30.9% | +23.9% | +7.0% |
| 2018 | -3.2% | -4.2% | +1.0% |
| 2019 | +10.0% | +19.3% | -9.3% |
| 2020 | +14.0% | +15.2% | -1.2% |
| 2021 | +34.2% | +21.6% | +12.6% |
| 2022 | +16.3% | -9.7% | +26.0% |
| 2023 | +1.5% | +18.9% | -17.4% |
| 2024 | +31.6% | +24.7% | +6.9% |
| 2025 | +11.9% | +14.9% | -2.9% |
| 2026 | +0.9% | -5.9% | +6.8% |
Sector Allocation
The momentum filter shifts the sector mix compared to pure value. Energy and cyclicals are still present but momentum selects the ones that are recovering, not just the cheapest.
Data & Methodology
Value screenVC1: P/E, P/S, P/B, P/FCF, EV/EBITDA
VC2: VC1 + Shareholder Yield (TTM)
VC3: VC1 + Dividend Yield
Momentum6-month price return (t−6 to t−1). Skips most recent month to avoid reversal.
SelectionCheapest 20% by value composite → top 25 by momentum. Equal weight.
FundamentalsSharadar quarterly TTM. Refreshed monthly. 2-month lag.
RebalanceMonthly (primary) and annual (12 months averaged).
Period2005–2026 · 17,618 stocks · 12,151 delisted · Ex-financials, positive earnings.
PricesEnd-of-month adjusted close (dividends reinvested).
