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USVM - When The Equity Premium Fades, Alpha Shines
USAA MSCI USA Small Cap Value Momentum Blend Index
2025-05-01 14:10:00 ET
Summary
This blog examines why the ERP is declining, how alpha thrives in low-return environments, and most importantly, how investors can adapt to a beta-constrained future.
Historically, US equities have returned 10% annually, fueled by expanding valuation multiples, robust earnings, favorable demographics, and US market dominance.
Factor premiums - returns from strategies like value, momentum, quality, and low volatility - perform robustly in low-return environments.