1. Throughout this article, large- and mid-cap portfolio includes the top 86% of companies by market cap with free-float adjustment, while the small-cap portfolio represents the 86%–98% segment of the universe. The composite valuation ratios are computed as the geometric average of four price-to-fundamental ratios: (1) price to average 5-year earnings, (2) price to average 5-year sales, (3) price to book, and (4) price to average 5-year dividends. Unless otherwise noted, the article uses data from March 1990 – December 2024.

2. In our series of works (Arnott et al., 2016, 2017), we demonstrate that relative valuations are strong predictors of subsequent relative returns.

3. Recent examples include BlackRock and Wellington Management.