These pictures show returns of the market portfolio and the HML portfolio between January and September of 2020. The left picture shows the monthly net returns. The right picture, based on the net returns, shows the cumulative return from investing $1 in January in each portfolio. As you can see the performance of both has dramatically diverged since April: the market portfolio recovered whereas the HML portfolio has kept its string of negative returns.

Using the knowledge of how Fama and French constructed their HML portfolio, and knowing what the typical value and growth companies are, could you please explain the differential performance of the market and HML portfolios?

Cumulative return on $1 invested in Januarv Net returns 20 15 10 5 0 15 20 Market HML Cumulative return on $1 invested in Januarv Net returns 20 15 10 5 0 15 20 Market HML