Why It Appears Value ETFs Are Outperforming

Exchange traded funds that track the value style are outperforming, with value beating growth stocks by the widest margin in two decades, as investors bet on a broader economic rebound. 

Source: Why It Appears Value ETFs Are Outperforming

Year-to-date, the iShares S&P 500 Value ETF (NYSEArca: IVE) increased 9.8%, compared to the 1.1% gain for the iShares S&P 500 Growth ETF (NYSEArca: IVW)   and the 5.2% rise in the broader iShares Core S&P 500 ETF (NYSEArca: IVV) .

As the distribution of Covid-19 vaccinations accelerates, portfolio managers are targeting cyclical stocks, like banks and energy companies, that benefit from the improved economic outlook, the Wall Street Journal reports. These segments also reflect a value play in which companies trade at low multiples to their book value or net worth.

“People are starting to see, OK, we’re going to open up,” Daniel Genter, Chief Executive and Chief Investment Officer at RNC Genter Capital Management, told the WSJ. “There’s a light at the end of the tunnel, and it’s not a train coming the other way.”

A Reversal Of Growth Fortunes


The reversal of fortunes for the value play has been years in the making after big growth names, notably technology stocks, outperformed since the financial crisis.

So far this year, the Russell 1000 Value Index was up 10%, and the Russell 1000 Growth Index was 0.4% higher. According to Dow Jones Market Data, the disparity reflects the largest lead for value stocks at this time of year since 2001, or when the tech bubble burst and led to a resurgence in value shares.

However, value investors have been burned before. Value stocks have underperformed shares of fast-growing companies throughout much of the past decade. Specifically, from the end of 2010 to the end of 2020, the value index doubled, but the growth index quadrupled over the same period.

“I think it’s going to be very difficult for the aggressive growth stocks to outperform,” Lamar Villere, portfolio manager at investment firm Villere & Co., told the WSJ. “The expectations that are baked into their valuations are still incredibly high.”

Many look to the more attractive valuations in the value segment, especially after a rally last year that elevated prices on technology and growth names. At the end of February, the Russell 1000 Value Index was hovering around 21.89 times the past 12 months’ earnings, according to FTSE Russell. In comparison, the Russell 1000 Growth Index was trading at around 37.22 times earnings.

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