The value premium will never die given enough economic stability. It may not show up during our lifetime, or the economy may get hit hard so many times that our SCV never can properly recapitalize and the risk we knowingly took didn't pay off and we are forever doomed to lose to TSM/S&P/etc.
1. The risk will always exist
Even if humans were perfectly rational creatures and never suffered behavioral biases, I think SCV would still outperform barring a series of economic recessions/depressions that would cause the economic waves to be so choppy that SCV never fully recovers. This is the risk you are taking when you own SCV, and I believe that people will continue to be willing to pay a VERY high premium for MSFT level earnings and AAPL level balance sheet. This risk of SCV never goes away, even with perfect arbitrage of prices they should always trade at a discount to growth. That's where the expected return comes from.
2. Behavioral reasons.
Shiny thing syndrome and recency bias. Fund managers and most retail are short sighted, after this statistically almost improbable (better than 99%(?) of statistical 10 year monte carlo simulations) recent run in the S&P,
they are now allocating more money to domestic stocks than international than they have in the last 8 years.
A bunch of investors holding SCV doesn't change much. Trading is what sets prices, not holding it. Most traders for some reason aren't bidding up the price of SCV, at least relative to how much they're bidding up the price of LCG. Unless the risk of SCV has increased percipitously, which given current RoE, debt levels, etc. compared to LCG they don't look riskier than historically. So (possibly naively based on metrics alone) we should not be seeing a continual divergence in the common valuation metrics between SCV, LCG, TSM, etc.
Most DIY retail people are buying Nasdaq 100 or S&P 500, we "informed" investors are a VERY small part of the retail market. Most people don't understand how to budget for a $400 emergency expense, don't expect them to understand anything beyond past returns for picking funds, if they pick funds at all. I'd argue SCV exposure is an advanced allocation for most investors. Most people have market exposure but have no idea what they're buying, or what they're paying for, a little more advanced people are buying total market/S&P 500 index funds, an even smaller percentage know about or even want SCV allocation.
Considering how other styles have had extreme multiple expansion (looking at you large cap growth) and small cap value hasn't had any multiple expansion at all, the fact that small cap growth recently had that HUGE run (before the recent crash) it looks like small cap value premium either exists and is getting larger because of behavioral biases or risk just doesn't get compensated anymore, something I don't believe will continue and have my money where my mouth is.
Recently with interest rates rising this has started to shift, but as
Cliff Asness keeps seeing with his data, the value spread is very real compared to historical valuations.